A recent report by the IRS Inspector General says bogus education tax credits were issued to more than 3.6 million taxpayers in 2012. Most of the credits went to students even though the IRS never received tuition statements from the schools. This adds up to $5.6 billion in possible education tax credits in one year, or more than a quarter of all education credits claimed by taxpayers.
Stephen Ohlemacher, reporting for Associated Press, writes some of the students went to schools that were not eligible for federal funding, and others did not take enough class hours to qualify for the tax credits.
“The IRS still does not have effective processes to identify erroneous claims for education credits,” said J. Russell George, Treasury inspector general for tax administration.
Some steps have been taken by the IRS to improve the oversight of credits, but it has not yet addressed all the mistakes that were found by George’s office in a 2011 report. The report found that the IRS had issued $3.2 billion in possible bogus education credits in 2010, which means taxpayers continue to receive billions of dollars worth of potentially incorrect education tax credits.
According to the IRS, Congress could help correct some of these errors by simplifying the education tax credits and giving the IRS better tools to use in validating student eligibility. The agency added that it would be helpful if Congress would restore budget cuts.
“Since 2010, the IRS budget has been reduced by nearly $1.2 billion and we expect to have 16,000 fewer employees by the end of this fiscal year,” said the IRS statement. “We simply do not have enough resources to audit every questionable credit.”
Sen. Orrin Hatch (R-Utah) believes that the IRS is not living up to its responsibilities and that the agency should be safeguarding taxpayers hard-earned money.
The American Opportunity Tax Credit, which offers as much as $2,500 a year to help with tuition and other fees, has as its only criteria is that students should be in a program that leads to a degree. This credit can be claimed for up to four years.
The Lifetime Learning Credit pays 20% of tuition and other education-related expenses up to $2,000. There is no time limit on taking this credit and students do not have to be working toward a degree. For both of these credits, the student must be attending schools that are eligible for federal student aid.
George states that some of his recommendations to the IRS have been unheeded, but the IRS retorts the Inspector General is overstating the amount of money that has wrongly been given out for education credits and argues that it has “taken a number of steps” to protect the tax incentives, writes Bernie Becker for The Hill.
Lawmakers expanded one of the incentives during Obama’s stimulus law into the Democrats’ 2009 American Opportunity Tax Credit, which they have extended through 2017 and would like to make permanent. Legislators on both sides of the aisle would like to see legislation that would consolidate the major tax breaks for college education into one main incentive.
Jamie Dupree of the Cox Media Group writes that one of the reasons the IRS did not have the Form 1098-T eligibility documents — the form which is filed by schools to verify that a student is enrolled — was that they were not available at the time tax returns are filed. He adds that the report included the finding that paid tax preparers may have taken advantage of the lack of review from the IRS on the matter, and they continue to prepare tax returns with “questionable” education credit claims.