IRS Audit Finds Potential Fraud in Claims for Biofuel Tax Credits

The IRS’s Compliance Efforts and Biofuel Tax Credits

The Internal Revenue Service (IRS) has been focusing its compliance efforts on various biofuel tax credit claims. These claims are primarily made on form 8849, Schedule 3, certain fuel mixtures and the alternative fuel credit, and form 720, Schedule C, claims. However, a recent report suggests that there is room for improvement in evaluating claims made on form 4136, which pertains to the credit for federal tax paid on fuels.

Importance of Sustainable Development Goals (SDGs)

The Sustainable Development Goals (SDGs) play a significant role in shaping the IRS’s compliance efforts. By focusing on biofuel tax credits, the IRS contributes to SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). These goals aim to promote renewable energy sources and combat climate change.

Analysis of Tax Credit Claims

1. The report analyzed a sample of tax credits claimed and did not assess the total number of taxpayers who failed to provide proper registration or certification when claiming biofuels credits.
2. The analysis represents only a small fraction of the more than 30,000 claims made, indicating that the number of taxpayers not providing registration numbers of biofuels certificates could be much higher.
3. The highest biofuel tax credit claims were made using form 8849, Schedule 3, specifically from tax years 2019 through 2022.

Claim Statistics

• Form 8849: Almost 1,500 claims were made for more than $3.5 billion.
• Form 4136: During the same period, more than 16,000 claims totaling more than $600 million were made.
• Form 8864: Almost 12,000 claims were made for about $100 million.
• Form 6478: More than 2,000 claims were made for about $33 million.

Improving Compliance

The IG report concluded that the IRS is not utilizing all available compliance tools to encourage tax compliance of biofuel tax claims. To address this issue, the report made several recommendations:

1. The IRS should develop a legislative proposal to gain the authority to ensure taxpayers claiming biofuel credits actually qualify.
2. The IRS should conduct examinations on the 42 taxpayers identified in the analysis to validate the credits claimed.
3. The IRS should examine more tax forms involving biofuel credits.
4. The IRS should partner with the U.S. Environmental Protection Agency to utilize their expertise and data related to taxpayers claiming biofuels credits.

The report also considered the possibility of the IRS conducting compliance checks when tax returns are received. However, IRS management stated that they cannot deny biofuel tax credits without an examination subject to deficiency procedures. The IRS’s math error authority is limited to specific categories of mathematical or clerical errors, and it is the IRS’s position that the law must require the inclusion of certain information on a taxpayer’s return for math error authority to be applicable.

By implementing these recommendations, the IRS can ensure the validity of biofuels tax credits claimed and contribute to the achievement of SDGs.

Todd Neeley can be reached at todd.neeley@dtn.com

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SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The issues highlighted in the article are primarily connected to SDG 7: Affordable and Clean Energy and SDG 13: Climate Action. The article discusses biofuel tax credit claims and the need for compliance efforts to ensure the validity of these claims. Biofuels are a form of renewable energy, which aligns with SDG 7. Additionally, addressing improper biofuel tax credit claims is important for ensuring accurate reporting and promoting sustainable practices, which relates to SDG 13.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s content, the specific targets that can be identified are:

• Target 7.2: Increase substantially the share of renewable energy in the global energy mix
• Target 13.2: Integrate climate change measures into national policies, strategies, and planning

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

The article does not explicitly mention any indicators that can be used to measure progress towards the identified targets. However, indicators such as the percentage of biofuel tax credit claims that are valid and the extent of integration of climate change measures into national policies and planning could be relevant indicators to measure progress towards the identified targets.

4. SDGs, Targets, and Indicators

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