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Treasury Inspector General for Tax Administration

Press Release

October 20, 2011
TIGTA - 2011-69
Contact: Karen Kraushaar
(202) 622-6500

TIGTA: 2.1 Million Taxpayers May Have Received $3.2 Billion In Erroneous Education Tax Credits

Washington – An estimated 2.1 million taxpayers may have received $3.2 billion in erroneous education credits, according to a new report from the Treasury Inspector General for Tax Administration (TIGTA).

The American Recovery and Reinvestment Act of 2009 created a refundable tax credit called the American Opportunity Tax Credit (AOTC) to help taxpayers offset the cost of higher education. This credit has been extended to 2011 and 2012 returns. TIGTA assessed the effectiveness of the IRS processes to identify erroneous AOTC claims.

TIGTA found that 1.7 million taxpayers erroneously received an estimated $2.6 billion in education credits even though the Internal Revenue Service (IRS) had no supporting documentation that these taxpayers had attended an eligible institution, defined as an accredited institution of higher learning. While the IRS initially did not agree with the amount of erroneous claims identified by TIGTA, it subsequently informed TIGTA that it has found a high percentage of the claims with no supporting documentation to indeed be erroneous. IRS management noted that they expect the percentage found to be erroneous to further grow and have increased the number of tax returns they plan to review with this condition in Fiscal Year 2012.

Other findings include:

“Based on the results of our review, the IRS does not have effective processes to identify taxpayers who claim erroneous education credits,” said J. Russell George, Treasury Inspector General for Tax Administration. “If not addressed, this could result in up to $12.8 billion in potentially erroneous refunds over four years,” Mr. George added.

TIGTA made 11 recommendations including: revising the current tax form to claim education credits; coordinating with the Department of Education to assess using its data files in tax return processing; revising compliance programs to identify taxpayers who erroneously claim the credit; and coordinating with the Department of the Treasury to determine whether legislation is needed to clarify whether the credit may be claimed for students who lack a valid SSN. The IRS agreed with 10 of TIGTA’s recommendations and partially agreed with the remaining recommendation. The IRS disagreed with TIGTA’s recommendation to initiate a Tax Return Preparer Project to address those preparers associated with large volumes of erroneous education credit claims.

Read the report.


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