New Year’s tax bills coming for EV drivers who claimed credits they didn’t earn
Now that President Trump has dashed EV fans’ hopes of more tax credits for electric cars, it looks like the money spent for the credits so far hasn’t all been used for its intended purpose.
According to a recent report in Forbes magazine, the inspector general of the U.S. Treasury department issued a report saying the “millions” of dollars have been doled out fraudulently, either to buyers of non-electric cars, or to buyers of plug-in hybrids claiming a higher credit than their cars qualified for.
Under the Energy Security and Independence Act, passed in 2007 under President George W. Bush, fully electric cars with a battery capacity of at least 16 kilowatt-hours are eligible for a $7,500 federal tax credit. The 16-kwh battery pack equates to an electric range of about 40 miles, and was chosen—after lobbying by GM—because it covers the average distance 80 percent of Americans drive in a day.
Other plug-in hybrids with smaller batteries, were eligible for lower credits based on the size of their batteries. Buying a new Ford Fusion Energi plug-in hybrid, for example, earns its owner a tax credit of $4,609.
Additional tax credits for both electric cars and plug in hybrids are available in some areas from states, cities, and utilities.
The first problem the report cited is that buyers of such plug-in hybrids requested and received the full $7,500 federal tax credit.
A potentially bigger problem involves leases. In a lease, the bank owns the car and so is eligible for the credit. The lessee is not, though finance companies owned by automakers may pass some or all of the credit through to the lessee as an incentive to lower the monthly lease payments.
According to the inspector-general’s report, of the more than 239,000 claims it investigated, 1,509 were paid twice, both to a vehicle lessee and to the lessor. That amounts to more than $8 million in fraudulent claims.
In all, the report found 16,510 fraudulent claims, amounting to $73.8 million. The problem arises because the IRS has not checked the VIN numbers for the vehicles on which claims were made. Automaker-owned finance companies normally bundle their claims and file for large numbers of credits together.
Last week, Congress passed a $1.4 billion spending bill that will only keep the government funded through next fall, so taxpayers can expect the issue of electric-car tax credits to keep cropping up. America’s two largest electric car manufacturers, Tesla and General Motors, have each reached the limit of their tax credits, brought on by selling more than 200,000 plug-in cars.
Unless it gets extended in future funding bills, those automakers will be at a $7,500 disadvantage to import automakers such as Hyundai and Kia beginning to flood the market with excellent electric cars. If automakers and electric car advocates want to make the case for the credits, they should support efforts to ensure the IRS checks them and they're claimed honestly. Otherwise, opponents will seize on the credits as rife for abuse and they could end more quickly than planned.
In the meantime, the government will try to fill the $74 million funding gap in 2020 by sending bills to consumers who filed for tax credits they didn’t earn.
Happy New Year.
Eric Evarts has been bringing topical insight to readers on energy, the environment, technology, transportation, business, and consumer affairs for 25 years. He has spent most of that time in bustling newsrooms at The Christian Science Monitor and Consumer Reports, but his articles have appeared widely at outlets such as the journal Nature Outlook, Cars.com, US News & World Report, AAA, and TheWirecutter.com and Alternet. He can tell readers how to get the best deal and avoid buying a lemon, whether it’s a used car or a bad mortgage. Along the way, he has driven more than 1,500 new cars of all types, but the most interesting ones are those that promise to reduce national dependence on oil, and those that improve the environment. At least compared to some old jalopy they might replace. Please, follow Evarts on Twitter, Facebook and Linkedin.