Treasury Dept. audit finds fraud in filings for energy tax-credits

WASHINGTON — Can the Internal Revenue Service handle tax credit programs that pump out billions of dollars to homeowners and buyers?

A new federal investigation on home energy tax credits suggests the answer may be: not quite yet.

The Treasury Department's inspector general for tax administration audited the residential tax credit program created by Congress to encourage homeowners to install energy-saving equipment and materials in their houses, and found some disturbing oversights.

One part of the program offers 30 percent credits — with no dollar limit — for solar energy systems, geothermal heat pumps, wind turbines, and fuel cells installed before Dec. 31, 2016.

A second part — for energy-efficiency home improvements — offered credits up to $1,500 for qualifying exterior windows and doors, insulation, and roofing materials.

More than 6.8 million taxpayers received credits during tax year 2009, totaling $5.8 billion through December, 2010.

But substantial numbers of the filings had problems that went undetected by the IRS, according to the inspector general's investigation.

In a review of 5 million returns, auditors found that more than 302,000 taxpayers, who received a total of $234 million in credits, showed no evidence of owning a home — the minimum requirement for eligibility.

A review of a smaller sample of returns, supplemented with local real estate property deed information, found that 30 percent "had no record of owning a home."

Investigators also discovered that the IRS was unable to verify other key requirements for eligibility when taxpayers filed returns.

For example, the agency could not verify that a claimant "purchased a qualified energy-saving product and made energy-efficiency improvements."

Nor could it verify the cost of the energy-saving equipment or whether the improvements were made during the required time limits.

Among ineligible recipients were prison inmates and underage applicants.

The audit found that prisoners "who were [incarcerated] for the entire year" — and thus not likely to have purchased and installed energy-saving equipment — received $343,487 in credits.

One hundred recipients were under 18 years of age — too young to execute legally binding contracts for renovations and unlikely to own a home.

Nearly one-third of the underage recipients were less than 14 years old, and the youngest was just 3.

In a response to the inspector general after the audit, the IRS said it will revise the form on which energy credits are claimed to require documentation.