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Electric Car Tax Credit Abused By Thousands, Including Hummer Owners and Prisoners

Electric cars like Tesla come with a tax credit, but that credit has been wrongly claimed by thousands who didn't own electric carsThe push for alternative fuel vehicles continues as state, federal and private funds are used to promote new technologies. Following former President George W. Bush's incentives for fuel stations to expand access to biofuels, President Obama has increased the promotion of alternative vehicles over the last two years using tax credits in an attempt to reach his administration's goal of putting more than a million electric cars on the road by 2015.

While the government has offered various incentives to increase people's interest in owning and operating electric vehicles, none have proven more popular than a $7,500 tax credit for a plug-in electric drive motor vehicle. Unfortunately, a recent report by the Treasury Department's inspector general indicates that well over $30 million in credits may have been improperly claimed by purchasers of non-electric vehicles, including Cadillac Escalades, Hummer H3s and other gas guzzling SUVs. The report indicates that some wrongful claimants were actually incarcerated or IRS employees at the time the improper credit was taken.A number of car companies have focused on developing electric plug-in vehicles in recent years and several are now available or will soon be available. Currently the Chevrolet Volt and Nissan Leaf dominate the headlines as electric offerings, but startups such as Tesla Motors, now financially-backed by Toyota, and others are getting into the game. To help encourage consumers to purchase these new vehicles, tax credits and other incentives help to offset the additional cost added to the cars by the new technology. The incentives appear to be having some effect, as nearly a thousand Volts and Leafs have been sold since December, but the lucrative credit leaves room for improvement in the area of accuracy.

The Treasury Department report only covers the first six months of 2010, but it estimated that nearly 13,000 taxpayers claimed the electric vehicle tax credit improperly. Over $160 million in tax credits were claimed for such vehicles, and nearly 20% of those claims now appear to be erroneous. The inspector general made numerous recommendations to investigate and recover wrongfully-claimed credits as well as improve the reporting methods to avoid false claims in the future. The report indicates that some improvements have already helped the IRS avoid an additional $3.1 million in lost revenue surrounding these credits.

The Internal Revenue Service issued a statement saying it will "process taxpayer claims quickly and accurately while safeguarding against improper payments." The IRS further reiterated that it is "taking aggressive steps to recapture the credits people erroneously claimed," should anyone think they too may be able to cash in on an undeserved tax credit.

Despite difficulties in confirming proper compliance with the plug-in electric motor vehicle tax credit for new cars and other incentives for things such as converting a car into a plug-in, the federal government will press on to meet its goals. Actually reaching the 1 million mark may prove difficult even if credits and incentives can help bring costs of electric vehicles closer to those running on more traditional gasoline and diesel. Installation of home charging stations, recharging stations on the road for travelers, and concerns about whether the current electric grid can handle the additional load of electric vehicles charging in greater numbers all continue to limit the rate of adoption.

Gasoline powered vehicles may eventually go the way of the dinosaurs, but that probably won't come as quickly as some hope or expect. As fuel prices have generally remained stable, SUV sales have jumped 41% in the last year while "green" vehicles such as Toyota's Prius Hybrid have seen sales drop. Taxpayers interested in electric and other alternative fuel vehicles in the near future will likely see this as an advantage, however, because it will help to extend the time period during which tax credits and incentives remain available. As tax incentives continue and acceptance of electric vehicles grows, expect to see more manufacturers and consumers join the electric car revolution.

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