Many Taxpayers Who Were Not Eligible Received Additional Education Credits Intended for Those Attending Schools in Midwestern Disaster Areas
September 23, 2010
Reference Number: 2010-40-123
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Redaction Legend:
1 = Tax Return/Return Information
Phone
Number | 202-622-6500
Email Address | inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
HIGHLIGHTS
MANY TAXPAYERS WHO WERE NOT ELIGIBLE
RECEIVED ADDITIONAL EDUCATION CREDITS INTENDED FOR THOSE ATTENDING SCHOOLS IN
MIDWESTERN DISASTER AREAS
Highlights
Final
Report issued on September 23, 2010
Highlights of Reference Number:
2010-40-123 to the Internal Revenue Service Commissioner for the Wage
and Investment Division.
IMPACT ON TAXPAYERS
Tax credits are available to
help taxpayers offset the costs of higher education. These credits are available to certain
taxpayers who pay qualified education expenses for higher education for
themselves, their spouses, or dependents.
The Hope Credit is limited to eligible students enrolled in their first
2 years of post-secondary education. Congress
passed the Heartland Disaster Tax Relief Act of 2008 with provisions benefitting
taxpayers affected by a major disaster. One
provision allowed taxpayers with eligible students attending eligible
educational institutions in the designated Midwestern Disaster Areas to claim
twice the qualifying amount of education credits. For Tax Year 2008, this increased the
maximum amount of Hope Credit from $1,800 to $3,600 for each qualifying
student.
Some taxpayers are claiming more
than the standard maximum amount of Hope Credit even though the listed students
do not qualify under the Heartland Disaster Tax Relief Act of 2008. In other instances, the students may not
qualify for any portion of the Hope Credit.
WHY TIGTA DID THE AUDIT
This audit was
initiated because, during a prior audit of education credits, TIGTA found
indications that control weaknesses may exist that allow taxpayers to claim
Hope Credits greater than the amounts allowed.
The overall objective of this audit was to determine whether Internal
Revenue Service (IRS) controls were in place to ensure only eligible taxpayers
received education credit tax relief available to affected taxpayers in the
Midwestern Disaster Areas.
WHAT
TIGTA FOUND
TIGTA’s review of a statistically valid sample of 383 tax
returns with claims for more than the standard maximum amount of Hope Credit determined
that 197 of the claims were for students who did not qualify for the Hope Credit,
did not attend school in the Midwestern Disaster Areas, or may not have
attended school at all. TIGTA found that
the taxpayers making these claims received $224,504 more than they were
entitled to. Based on this data, TIGTA
estimates that taxpayers filing 48,940 tax returns with such claims erroneously
received almost $55.8 million in excessive Hope Credits for Tax Year 2008.
Overall, TIGTA found that the IRS has no controls in
place to determine whether students qualify for more than the standard maximum
amount. TIGTA also found that there is no maximum limit programmed for the amount
of Hope Credit that can be claimed other than the adjusted gross income
limitations. The only other limitation
appears to be a taxpayer’s tax liability.
WHAT TIGTA RECOMMENDED
The
IRS should ensure that only qualifying taxpayers are allowed to receive more
than the normal maximum amount of Hope Credit allowed. Taxpayers that have improperly received an
excessive amount of credit should be examined, and any excessive amounts
claimed should be recovered. Additional
steps should also be taken to ensure that taxpayers qualify for the additional
amount. The IRS should also ensure adherence
to increased maximums on any future provisions.
IRS
management agreed with three recommendations and partially agreed with one recommendation. Management agreed to conduct examinations of
improper claims, evaluate the feasibility of an automated process to verify
claims, update computer processing controls to limit the amount of Credit that
can be claimed, and make modifications to forms to increase compliance in the
future.
September 23, 2010
MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Many Taxpayers Who Were Not Eligible Received Additional Education Credits Intended for Those Attending Schools in Midwestern Disaster Areas (Audit # 201040033)
This report presents the results of our review to determine whether Internal Revenue Service controls were in place to ensure only eligible taxpayers received education credit tax relief available to affected taxpayers in the Midwestern Disaster Areas. This audit is part of the Treasury Inspector General for Tax Administration’s Fiscal Year 2010 Annual Audit Plan and addresses the major management challenge of Implementing Tax Law Changes.
Management’s complete response to the draft report is included as Appendix V.
Copies of this report are also being sent to the Internal Revenue Service managers affected by the report recommendations. Please contact me at (202) 622-6510 if you have questions or Michael E. McKenney, Assistant Inspector General for Audit (Returns Processing and Account Services), at (202) 622-5916.
Some Taxpayers Received
More Hope Credit Than They Were Entitled to Receive
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
V – Management’s Response to the Draft Report
Abbreviations
|
IRS |
Internal Revenue Service |
|
TY |
Tax Year |
Tax credits are available to help taxpayers offset the costs of higher education. These credits are available to taxpayers who pay qualified expenses for higher education for themselves, their spouses, or their dependents that are claimed as exemptions on their tax returns as long as they are eligible students.
The Heartland Disaster Tax Relief Act of 2008 allows students attending an eligible
educational institution located within the “Midwestern Disaster Area” to claim
twice the amount of Hope and Lifetime Learning Credits.
· Hope Credit – For each eligible student in Tax Year (TY) 2008, this credit was equal to 100 percent of the first $1,200 of qualified education expenses and 50 percent of the next $1,200 of qualified expenses, for a maximum credit of $1,800 per eligible student. The amount of the Hope Credit is phased out if the modified adjusted gross income is between $48,000 and $58,000 ($96,000 and $116,000 if a joint return is filed). This credit is limited to eligible students enrolled in their first 2 years of post-secondary education attending at least half-time. It does not apply to the third, fourth, or higher years of undergraduate or graduate programs.[1]
· Lifetime Learning Credit – In TY 2008, this credit was equal to 20 percent of the first $10,000 of qualified education expenses, for a maximum credit of $2,000 per eligible taxpayer. This credit is available every year for an unlimited number of years.
·
American
Institutions of higher education are required to provide each student with a Tuition Statement (Form 1098-T) that reports payments received or amounts billed for qualified tuition and related expenses, scholarships and grants given, adjustments made for a prior year, and the name and location of the institution. The taxpayer in turn reports qualified education expenses on Education Credits (American Opportunity, Hope, and Lifetime Learning Credits) (Form 8863) and claims the credit on the appropriate line of the U.S. Individual Income Tax Return (Form 1040). In addition, educational institutions provide the Internal Revenue Service (IRS) with the same Form 1098-T information they provided to the students. This information is entered onto the IRS’ Information Returns Master File.[3] The data on this system can help to validate the information provided on taxpayers’ tax returns.
Congress passed the Heartland Disaster Tax Relief Act of
2008, with provisions benefiting taxpayers affected by a major disaster. One provision allowed eligible students
attending eligible educational institutions in specific counties located within
the States of Arkansas,
This review was performed at the IRS Campus[4]
in
Some Taxpayers Received More Hope Credit Than They Were Entitled to Receive
We found that 51 percent of Hope
Credit claims for greater than the standard maximum amount were for students
that did not qualify for the Hope Credit, did not attend school in a Midwestern
Disaster Area, or may not have attended school at all.
The Hope Credit can be claimed for eligible students enrolled in their first 2 years of post-secondary education. Students attending eligible educational institutions located within the Midwestern Disaster Area may claim up to twice the standard maximum amount of Hope Credit. For TY 2008, this equals $3,600 (100 percent of the first $2,400 in qualified education expenses and 50 percent of the next $2,400 of qualified education expenses). The maximum amount is available for each qualifying student.
From the
IRS’ Individual Return Transaction File[5] on the Treasury Inspector General
for Tax Administration Data Center Warehouse,[6] we identified 95,149 TY
2008 Forms 1040 (cases) that included claims for more than the standard maximum
amount of Hope Credit (we included claims by taxpayers with either 1 or 2 students). We analyzed a statistically valid sample of 383
cases to determine whether the “qualifying” students were eligible to receive
the higher amount of Hope Credit. From
our sample, we found that 197 claims (51 percent) were for students that did
not qualify for the Hope Credit, did not attend school in a Midwest Disaster
Area, or may not have attended school at all.[7]
·
For 44 of 197 cases, IRS records (Form 1098-T data on the
Information Returns Master File) showed that these students did not qualify for
the Hope Credit because they were not at least half-time students or they were
graduate students.
·
For 101 of the 197 cases, IRS records indicated that the students for
which the credits were claimed appeared to have qualified for the credits, but
had not attended educational institutions in the Midwestern Disaster Area.
·
For the remaining 52 cases, no Form 1098-T information was present
on IRS records to indicate the students for which the credits were claimed attended
any school. The absence of such
supporting data is a strong indicator that the students listed may not have
actually been qualifying students.
Three control weaknesses allowed the inappropriate claims
Three
control weaknesses allowed taxpayers to inappropriately receive additional Hope
Credits intended only for students attending school in Midwest Disaster Areas.
1.
The IRS requires no third-party documentation
with the tax return to support a claim for an education credit. As mentioned earlier, taxpayers are provided
with copies of Form 1098-T. This form
not only contains amounts taxpayers paid or were billed for education expenses,
but also contains the name and address of the educational institution and an
indicator of whether the student was at least a half-time student.
2.
Form 8863 contains no indicator
that a student attended school in a Midwest Disaster Area or an indicator
showing whether the student was at least a half-time student. Therefore, the IRS has no way to distinguish
between a student attending school in a disaster area and a student for whom
the taxpayer incorrectly claims more Hope Credit than he or she was entitled to
claim. It also cannot determine whether
the student was at least a half-time student.
3.
The IRS has not programmed its
computers to limit the amount of Hope Credit claimed. Our review of the IRS’ Functional
Specification Package[8] for the processing of Form 8863
showed that there were no controls in place limiting the amount of Hope Credit
that can be claimed other than adjusted gross income limits. Based on this and our case review, it appears
the only other factor limiting the amount of Hope Credit is the amount of tax
liability owed by the taxpayer. For
instance, even though the maximum amount of Hope Credit is $3,600 for 1 student
attending school in a Midwest Disaster Area, taxpayers claiming a $5,000 Hope
Credit amount would receive the full amount if their tax liability was at least
$5,000. If the same taxpayer claiming a
$5,000 Hope Credit had a tax liability of $4,800, the Hope Credit would be
limited to $4,800.
From our sample of 383 cases, we identified 4 cases for which the taxpayers claimed more than the Midwestern Disaster Area maximum amount ($3,600) of Hope Credit for a single student. In three of these cases, the taxpayer received more than the maximum amount allowed. **************1**************
Overall,
we found that the taxpayers who filed the 197 tax returns in our sample and claimed
more than the standard maximum amount of Hope Credit but did not qualify for
the increased amount received $224,504 more than they were entitled to. Based on this data, we estimate that taxpayers
filing 48,940 tax returns with such claims erroneously received almost $55.8
million in excessive Hope Credits.
We also
found a correlation between where the primary taxpayer lived and whether the
student(s) actually qualified for the increased amount. We analyzed our sample cases by comparing the
primary taxpayers’ State addresses to the Midwestern Disaster Area States[9] and found that of the 197 exception
cases, 132 (67 percent) of the primary taxpayers did not live in States affected
by the Midwestern disasters. From those
in our sample with a student(s) that qualified for the increased maximum, only three
of the primary taxpayers lived outside one of the States within the Midwestern
Disaster Area.
Recommendations
Recommendation 1: The Director, Reporting Compliance, Wage and Investment Division, should conduct post-refund examinations of erroneous claims to ensure refunds for excessive claims are recovered. Form 1098-T information received from the educational institutions could be used to validate whether the students attended eligible educational institutions located in Midwestern Disaster Areas. It could also be used to determine whether the students were at least half-time students.
Management’s Response: IRS management agreed with this recommendation. The IRS will conduct post-refund examinations of the 197 cases we identified as improperly claiming the credit and will use the results of those examinations to evaluate the value of additional examinations.
Recommendation 2: The Director, Reporting Compliance, Wage and Investment Division, should develop an automated process to utilize the data provided by education institutions on Forms 1098-T to identify taxpayers claiming questionable claims for education credits. Claims with no Forms 1098-T or claims for the Hope Credit with Forms 1098-T indicating students were not at least half-time students or were graduate students should be scrutinized by the Examination function. If an automated process cannot be developed, the Director should initiate a requirement for taxpayers claiming education credits to attach Forms 1098-T to their tax returns and the process described above should be performed manually during processing.
Management’s Response: IRS management partially agreed with this recommendation. The IRS agreed to evaluate the feasibility of an automated process to use the Form 1098-T data and match it to the appropriate tax return. If feasible, the IRS will submit the necessary Unified Work Request. Because the requested action will be subject to funding and resource prioritization by the Modernization and Information Technology Services organization, submission of the Unified Work Request will complete this corrective action. The IRS will also test a filter in Fiscal Year 2011 to identify taxpayers with no Form 1098-T claiming education expenses. However, the IRS does not agree to ask the taxpayer to attach the Form 1098-T to the return. In the event an automated match cannot be accomplished, the IRS will select a sample of returns to review and manually match against available Form 1098-T data received from the educational institutions. The volume each year will depend on the labor intensive nature of the process and the relative success of the program compared to other correspondence examination programs.
Recommendation 3: If similar provisions are enacted in the law for future disasters, the Director, Forms and Publications, Wage and Investment Division, should require taxpayers to specifically indicate on Forms 8863 when they are claiming increased education credit because of a disaster provision. Consideration should be given to modifying the Form 8863 with a check box for this purpose. The Director should also consider a requirement to include the county and State of the educational institution attended.
Management’s Response: IRS management agreed with this recommendation. The IRS will make the recommended changes to Form 8863 if similar legislation is enacted in the future.
Recommendation 4: The Director, Submission Processing, Wage and Investment Division, should ensure that computer processing controls are set to limit the amount of Hope Credit that can be claimed based on the number of students claimed and the maximum amounts allowable. The Director should also ensure adherence to increased maximums on any future provisions.
Management’s Response: IRS management agreed with this recommendation, and will submit a Unified Work Request, by January 15, 2011, to update computer processing controls limiting the amount of American Opportunity Credit (previously the Hope Credit) that can be claimed based on the number of students claimed and the maximum amounts allowable. Because the requested action will be subject to funding and resource prioritization by the Modernization and Information Technology Services organization, submission of the Unified Work Request will complete the corrective action.
Appendix I
Detailed Objective, Scope, and Methodology
Our overall objective was to determine whether IRS controls were in place to ensure only eligible taxpayers received education credit tax relief available to affected taxpayers in the Midwestern Disaster Areas. To accomplish our objective, we:
I. Determined the purpose of the education credit provisions available to affected taxpayers in the Midwestern Disaster Areas. We determined which taxpayers are eligible to claim the credits, the dollar limits associated with the credits, and whether adequate instructions were available for taxpayers to properly claim the credits.
A. Reviewed the laws and regulations enacted by Congress to provide tax relief for affected taxpayers in the Midwestern Disaster Area.
B. Reviewed the applicable Internal Revenue Code sections associated with the Midwestern Disaster Area (the Heartland Disaster Tax Relief Act of 2008).[10] We determined whether information in Information for Affected Taxpayers in the Midwestern Disaster Areas (Publication 4492-B) thoroughly explains the tax provisions of the Heartland Disaster Tax Relief Act of 2008 and the related education credits.
C. Reviewed the instructions provided to taxpayers in Tax Benefits for Education (Publication 970) or other applicable instructions dealing with education credits. We determined whether the explanation of the tax relief for Midwestern Disaster Area taxpayers is accurately and sufficiently explained in regards to the education credits.
D. Determined whether it appears that the IRS interpreted and implemented the law in accordance with Congressional intent.
II. Determined what IRS controls exist to ensure taxpayers are properly claiming the education credits for affected taxpayers in the Midwestern Disaster Areas.
A. Interviewed IRS processing personnel and programmers to determine what controls are in place for the education credit dollar tolerances.
B. Analyzed applicable IRS programming to determine what processing controls have been developed and implemented for the education credits to ensure that taxpayers are eligible for the higher amount of credit as defined by the Midwestern Disaster Area criteria.
C. Determined whether any post-processing controls exist which specifically review the education credits claimed by Midwestern Disaster Area taxpayers.
D. Determined whether controls appear to be programmed and worked properly.
III. Determined whether IRS controls ensure only eligible taxpayers are receiving Midwestern Disaster Area tax relief for the Hope Credit.
A. Downloaded all cases from the Information Returns Transaction File[11] located on Treasury Inspector General for Tax Administration’s Data Center Warehouse[12] for all TY 2008 returns which have claimed more than the standard Hope Credit for taxpayers claiming one or two students. We analyzed the volumes of cases to quantify the extent of the possible problem.
B. Performed validity checks of the data received in Step III.A. to ensure cases reviewed met our criteria.
C. Selected and reviewed a statistically valid random sample[13] of 383 TY 2008 Education Credits (American Opportunity, Hope, and Lifetime Learning Credits) (Form 8863) on which the taxpayer claimed more than the standard Hope Credit amount for 1 or 2 students from a population of 95,149 returns meeting this criteria. We checked the Integrated Data Retrieval System[14] to determine 1) where the taxpayer lived, 2) where the student attended school, 3) whether the student was at least half-time, 4) whether the taxpayer was entitled to the tax relief, and 5) whether there was any compliance activity on the account. We notated the types of processing errors.
Internal
controls methodology
Internal
controls relate to management’s plans, methods, and procedures used to meet
their mission, goals, and objectives.
Internal controls include the processes and procedures for planning,
organizing, directing, and controlling program operations. They include the systems for measuring,
reporting, and monitoring program performance.
We determined the following internal controls were relevant to our audit
objective: Wage and Investment Division
policies, procedures, and practices for processing Hope Credit claims. We evaluated these controls by reviewing
policies and procedures for processing education credits and reviewing
processed Hope Credit claims claiming more than the standard maximum credit
allowed.
Appendix II
Major Contributors to This Report
Michael E. McKenney, Assistant Inspector General for
Audit (Returns Processing and Account Services)
Kyle R. Andersen, Director
Bill R. Russell, Audit Manager
Douglas C. Barneck, Lead Auditor
Glory Jampetero, Senior Auditor
John Mansfield, Senior Auditor
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Deputy Commissioner for Services and Enforcement SE
Deputy Commissioner, Wage and Investment Division SE:W
Director, Compliance, Wage and Investment
Division SE:W:CP
Director, Customer Account Services, Wage and
Investment Division SE:W:CAS
Director, Customer Assistance, Relationships,
and Education, Wage and Investment Division
SE:W:CAR
Director, Accounts Management, Wage and
Investment Division SE:W:CAS:AM
Director, Media and Publications, Wage and
Investment Division SE:W:CAR:MP
Director, Reporting Compliance, Wage and Investment
Division SE:W:CP:RC
Director, Submission Processing, Wage and
Investment Division SE:W:CAS:SP
Director, Tax Forms and Publications, Wage
and Investment Division SE:W:CAR:MP:T
Chief Counsel
CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk
Analysis RAS:O
Office of Internal Control
OS: CFO:CPIC:IC
Audit Liaison: Chief,
Program Evaluation and Improvement, Wage and Investment Division SE:W:S:PRA:
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective action will have on tax administration. This benefit will be incorporated into our Semiannual Report to Congress.
Type and Value of Outcome Measure:
· Revenue Protection – Potential; $55,773,489 in ineligible claims for the Hope Credit on an estimated 48,940 tax returns (see page 3).
Methodology Used to Measure the Reported Benefit:
We obtained all returns on the Individual Returns Transaction File[15] which claimed more than the standard maximum Hope Credit for one or two students during TY 2008. We identified 95,149 taxpayer returns that met these criteria. We reviewed a statistically valid sample of 383 cases to determine if the students attended eligible institutions located in the Midwestern Disaster Areas. We further analyzed these cases to determine the amounts of Hope Credit that taxpayers received that they were not entitled to.
Our review of the 383 cases showed that 197 cases (51 percent) did not qualify for the higher amount of Hope Credit claimed. These 197 cases consisted of 101 cases (26 percent) that did not include students that attended qualified institutions in Midwestern Disaster Areas, 44 cases (11 percent) that did not qualify for the Hope Credit because they were not at least half-time students or they were graduate students,[16] and 52 cases (14 percent) that did not have Tuition Statements (Form 1098-T) on file with the IRS showing that they were, in fact, students. The total amount of Hope Credit these taxpayers received that they were not entitled to was $224,504. From our population of 95,149 taxpayers, we estimate that taxpayers filing 48,940 tax returns with such claims received $55,773,489 in Hope Credits to which they were not entitled. Our estimate is based on a 95 percent confidence level and a precision (range) of +/- $9,229,563.
Appendix V
Management’s Response to the Draft Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
ATLANTA, GA 30308
COMMISSIONER
WAGE AND INVESTMENT DIVISION
September 2, 2010
MEMORANDUM FOR
MICHAEL R. PHILLIPS
DEPUTY INSPECTOR GENERAL FOR
AUDIT
FROM: for
Richard Byrd. Jr. /s/ Peggy Bogadi
Commissioner, Wage and Investment Division
SUBJECT: Draft Audit Report - Many Taxpayers Who Were
Not Eligible Received Additional Education Credits Intended for Those Attending
Schools in the Midwestern Disaster Areas (Audit # 201040033)
We have reviewed
the subject draft report and
appreciate your perspective on our administration of education credits to affected
taxpayers in the Midwestern Disaster Areas. We believe improvements are needed
to ensure eligible students receive the benefits they deserve, and taxpayers claiming
inappropriate credits are denied those benefits.
We will
request computer processing controls to limit the amount that can be claimed
for the American Opportunity Credit[17]
and consideration has already been given to form changes on the Form 8863, Education
Credits (Hope and Lifetime Learning Credits).
In Fiscal Year 2011, we will begin examining taxpayers who do not have a Form
1098-T, Tuition Statement, but are claiming education expenses. We
will also evaluate the feasibility of an automated process to use the Form 1098-T
data and match it to the appropriate tax return.
We do not
agree that requiring taxpayers to attach Form 1098-T to their returns is appropriate,
even if we are unable to develop an automated matching process. The Paperwork
Reduction Act requires all Federal agencies to evaluate whether the proposed
collection of information is necessary for the proper performance of the functions
of the agency, including whether the information shall have practical utility.
Because the IRS already
obtains this information from third-parties, it would be inappropriate to
request the same information from taxpayers. If we are unable to develop an
automated matching process, we will select a sample of returns each year and
manually match against Form 1098-T data for possible examination.
We have
reviewed the methodology you used to formulate the outcome measures described
in Appendix IV and agree with the
reported benefits.
Attached are
our responses to your specific recommendations. If you have any questions
regarding this response, please contact me, or a member of your staff
may contact Ray Johnson, Acting Director, Reporting Compliance, Wage and
Investment Division, at (404) 338-8983.
Attachment
RECOMMENDATION 1: The Director, Reporting Compliance,
Wage and Investment Division, should
conduct post-refund examinations of erroneous claims to ensure refunds for
excessive claims are recovered. Form 1098-T information received from the educational
institutions could be used to validate whether the students attended eligible educational
institutions located in Midwestern Disaster Areas. It could also be used to determine
whether the students were at least half-time students.
CORRECTIVE ACTION
We agree with
this recommendation. We will conduct post refund examinations of the 197 cases
identified by Treasury Inspector General for Tax Administration as improperly claiming
the credit, and will use the results of those examinations to evaluate the
value of additional examinations.
IMPLEMENTATION DATE
July 15, 2011
RESPONSIBLE OFFICIAL
Director,
Reporting Compliance, Compliance, Wage and Investment Division
CORRECTIVE ACTION MONITORING PLAN
We will monitor
this corrective action as part of our internal management control system.
RECOMMENDATION 2: The Director, Reporting Compliance, Wage
and Investment Division, should develop an automated process to utilize the
data provided by education institutions on Forms 1098-T to identify taxpayers claiming
questionable claims for education credits. Claims with no Forms 1098-T or claims
for the Hope Credit with Forms 1098-T indicating students were not at least
half-time students or were graduate students should be scrutinized by the Examination
function. If an automated process cannot be developed, the Director should initiate
a requirement for taxpayers claiming education credits to attach Forms 1098-T
to their tax returns and the process described above should be performed
manually during processing.
CORRECTIVE ACTION
We partially
agree with this recommendation. We agree to evaluate the feasibility of an automated
process to use the Form 1098-T, Tuition Statement, data and match it to the
appropriate tax return. If feasible, we will submit the necessary Unified Work
Request (UWR). Because the requested action will be subject to funding and
resource prioritization by Modernization and Information Technology Services
(MITS), submission of the UWR will complete this corrective action. We will
also test a filter in Fiscal Year 2011 to identify taxpayers with no Form
1098-T claiming education expenses. However, we do not agree to ask the
taxpayer to attach the Form 1098-T to the return. In the event an automated
match cannot be accomplished, we will select a sample of returns to review and
manually match against available Form 1098-T data received from the Educational
Institutions. The volume each will depend on the labor intensive nature of the
process and the relative success of the program compared to other correspondence
examination programs.
IMPLEMENTATION DATE
September 15,
2011
RESPONSIBLE OFFICIAL
Director,
Reporting Compliance, Compliance, Wage and Investment Division
CORRECTIVE ACTION MONITORING PLAN
We will monitor
this corrective action as part of our internal management control system.
RECOMMENDATION 3: If similar provisions are enacted in the
law tor future disasters, the Director, Forms and Publications, Wage and Investment
Division, should require taxpayers to specifically indicate on Forms 8863 when
they are claiming increased education credit because of a disaster provision.
Consideration should be given to modifying the Form 8863 with a check box for this
purpose. The Director should also consider a requirement to include the county
and state of the educational institution attended.
CORRECTIVE ACTION
We agree with
this recommendation. We will make the recommended changes to Form 8863, Education
Credits (American 0pportunity, Hope,
and Lifetime Learning Credits), if similar legislation is enacted in the future.
IMPLEMENTATION DATE
N/A
RESPONSIBLE OFFICIAL
Director,
Media and Publications, Customer Assistance, Relationships and Education, Wage
and Investment Division
CORRECTIVE ACTION MONITORING PLAN
N/A
RECOMMENDATION 4: The Director, Submission
Processing, Wage and Investment Division,
should ensure that computer processing controls are set to limit the amount of Hope
Credit that can be claimed based on the number of students claimed and the maximum
amounts allowable. The Director should also ensure adherence to increased maximums
on any future provisions.
CORRECTIVE ACTION
We agree with
this recommendation, and will submit a UWR, by January 15, 2011, to update computer
processing controls limiting the amount of American Opportunity Credit (previously
the Hope Credit) that can be
claimed based on the number of students claimed and the maximum amounts
allowable. Since the requested action will be subject to funding and resource
prioritization by MITS, submission of the UWR will complete the corrective
action.
IMPLEMENTATION DATE
January 15,
2011
RESPONSIBLE OFFICIAL
Director,
Submission Processing, Compliance, Customer Account Services, Wage and Investment
Division
CORRECTIVE ACTION MONITORING PLAN
We will
monitor this corrective action as part of our internal management control system.
[1] Pub. L. No. 110-343, 122 Stat. 3912.
[2] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[3] A database containing all information returns transcribed by the IRS. It contains data about both the payer (filer) as well as data about the payee (recipient of income) from various forms.
[4] The data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to taxpayer accounts.
[5] A database the IRS maintains that contains information on the individual tax returns it receives.
[6] A collection of IRS databases containing various types of taxpayer account information that is maintained by the Treasury Inspector General for Tax Administration for the purpose of analyzing data for ongoing audits.
[7] Some of the taxpayers inappropriately claiming the Hope Credit were IRS employees. We referred this information to the Treasury Inspector General for Tax Administration Office of Investigations for further action.
[8] The IRS’ detailed specifications for computerized tax return processing.
[9] Although eligibility for the increased credit was based on county, we performed this analysis by State because that information was readily available on the Forms 1040 and the Forms 1098-T.
[10] Pub. L. No. 110-343, 122 Stat. 3912.
[11] A database the IRS maintains that contains information on the individual tax returns it receives.
[12] A collection of IRS databases containing various types of taxpayer account information that is maintained by the Treasury Inspector General for Tax Administration for the purpose of analyzing data for ongoing audits.
[13] The sample was based on a confidence level of 95 percent, a precision of ±5 percent, and an expected error rate of 50 percent, resulting in a sample size of 383. We selected statistical samples because we wanted to project our results over the entire population.
[14] IRS computer system capable of retrieving or updating stored information. It works in conjunction with a taxpayer’s account records.
[15] A database the IRS maintains that contains information on the individual tax returns it receives.
[16] Even though these taxpayers did not qualify for the Hope Credit, their education expenses likely qualified them for the Lifetime Learning Credit. Our computations took into account the amount of Lifetime Learning Credit that the taxpayers would be eligible for.
[17] , The American Opportunity Credit was previously known as the Hope Credit. The American Recovery and Reinvestment Act of 2009 (Pub, L, No. 111-5, 123 Stat. 115) added this credit for Tax Years 2009 and 2010.