Hatch Inquires About IRS Oversight of Green Energy Grants

"While this program has expired, the potential for fraud and need for oversight remain," Hatch wrote.

Hatch's letter follows a 2013 Treasury Inspector General for Tax Administration (TIGTA) which found that the IRS did not have a system in place to catalogue the taxpayer accounts of entities that received Section 1603 granted, allowing recipients the opportunity to later amend tax returns and claim a tax credit in addition to the grant.

Hatch also questioned how the agency screened applicants prior to grants being awarded.

"While I am encouraged to see some reports of the Department reducing grant amounts when instances of ineligible properties or incorrect basis calculations are found I am concerned that the Department may have failed to properly review other Section 1603 grant applications," Hatch wrote. "This program is far too large with the potential for far too much fraud to simply be left without coordinated and sustained oversight by both the Department and the IRS."

In the letter, Hatch asked what practices the Treasury Department and the IRS had in place to ensure the integrity of the Section 1603 program, inquired about the communication and coordination between the two agencies in overseeing the program and asked the agencies to describe the grant application review process prior to the grants being awarded.

The full text of the letter is below and a signed copy is available here.

Through the enactment of the American Recovery and Reinvestment Act of 2009 (Recovery Act), Congress created the Section 1603 grant program to subsidize "green energy" through cash grants in lieu of production and investment tax credits. As of January 1, 2016, the Treasury Department had awarded approximately $25 billion in Section 1603 grants. While this program has expired, the potential for fraud and need for oversight remain.

Section 1603 of the Recovery Act allows taxpayers to elect to receive an initial grant for renewable energy projects in lieu of claiming an investment tax credit (ITC) later. However, the Treasury Inspector General for Tax Administration (TIGTA) found that the Internal Revenue Service did not have a means of systematically labeling the taxpayer accounts of those who received Section 1603 grants, potentially leaving the door wide open for grant recipients to later amend their tax returns to claim ITCs or claim them in another year. Furthermore, TIGTA found that the IRS did not have sustained oversight in this area, instead electing to institute a temporary Compliance Initiative Project (CIP) which was then temporarily extended.

I also question the Department's efforts to adequately review Section 1603 grant applications prior to their being awarded to taxpayers. While I am encouraged to see some reports of the Department reducing grant amounts when instances of ineligible properties or incorrect basis calculations are found (indicating some level of Departmental review), I am concerned that the Department may have failed to properly review other Section 1603 grant applications. In 2011 the IRS Office of Chief Counsel issued a memo clarifying that the IRS may in the course of an audit review whether the amount of a Section 1603 payment was appropriate. Such a memo is unlikely to have been issued unless the IRS encountered this matter within examinations, raising the question of why these problems were not discovered by the Department when the grant applications were initially reviewed. This program is far too large with the potential for far too much fraud to simply be left without coordinated and sustained oversight by both the Department and the IRS.

Given these concerns, I ask that you respond to the following questions:

A CIP is any activity involving contact with specific taxpayers and the collection of taxpayer data within a group, to identify potential areas of noncompliance within the group for the purpose of correcting this noncompliance.

C.C.A 2011-004 (Sept. 30, 2011).