IRS Doled Out $5.6 Billion In Erroneous Stimulus Education Credits

In this March 22, 2103 file photo, the exterior of the Internal Revenue Service (IRS) building is seen in Washington.
AP/Susan Walsh

The Internal Revenue Service erroneously provided billions of dollars in educations tax credits to ineligible students, according to a new government watchdog report.

A report released Tuesday from the Treasury Inspector General for Tax Administration (TIGTA) reveals that the IRS doled out more than $5.6 billion in education credits in 2012 for more than 3.8 million students.

The tax credits in question, the American Opportunity Tax Credit (AOTC), were instituted with the 2009 Stimulus, known as the American Recovery and Reinvestment Act. They are intended to help offset the cost of higher education.

According to the report, TIGTA estimates that more than $3.2 billion credits were provided for students without the proper documentation. Another $2.5 billion were provided for students attending ineligible institutions.

Additionally, TIGTA estimates the IRS provided $650 million for students claiming the AOTC for more than four years and $662 million for students who were attending school less “than half-time.”

Tuesday’s audit follows another report TIGTA issued in 2011 that identified similar problems with the AOTC.

“The IRS still does not have effective processes to identify erroneous claims for education credits,” J. Russell George, Treasury Inspector General for Tax Administration, said in a statement. “Although the IRS has taken steps to address some of our recommendations, many of the deficiencies TIGTA previously identified still exist. As a result, taxpayers continue to receive billions of dollars in potentially erroneous education credits.”

TIGTA made five recommendations to help the agency suss out improper credit claims, to which the IRS responded it would implement two. In its response, the IRS took issue with some of the report’s findings, specifically that the IRS lacks an effective process to identify erroneous claims.

“To the contrary…IRS identified 1.8 million questionable returns for potential audit through our exam filters,” Debra Holland, the Commissioner of the IRS’ Wage and Investment Division, wrote in her response.

“Of those identified, IRS selected almost 9,600 cases for examination and over 126,000 in its Automated Underreporter program for Tax Year 2012 that bore the same questionable characteristics as those the TIGTA reports (No Form 1098-T, Received the AOTC for More Than Four Years, and Received the AOTC But Attended Less Than Half-Time),” she added.


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