The Internal Revenue Service may be allowing up to 60 percent of taxpayers who claim large noncash charitable contributions to incorrectly reduce their tax liability, according to a report from a Treasury Department inspector general.
The audit found that IRS controls are not adequate to ensure that taxpayers comply with reporting requirements for claiming the contributions, which include car donations.
The Treasury Inspector General for Tax Administration looked at a statistical sampling of 2010 returns and found that taxpayers claimed $77 million in motor vehicle donations that did not have corresponding forms filed by a charity.
All told, the inspector general estimated that more than 273,000 taxpayers erroneously claimed large noncash charitable contributions, reducing their taxes by a combined $1.1 billion.
The report recommended that the IRS expand its procedures for identifying returns without the necessary forms attached and develop processes for systematically verifying noncash charitable contributions. Such donations totaled about $202 million in 2010, the report said.
In its response to the audit, the IRS disagreed with the inspector general’s estimate of $1.1 billion in tax reductions through erroneous reporting.
The agency said unsubstantiated claims do not always equate to unallowable claims. It said the analysis “did not consider subsequent enforcement activity … and whether the taxpayer had subsequently substantiated the deduction.”