(Daniel Acker/BLOOMBERG)

Millions of American taxpayers may have erroneously claimed an education tax credit last year that is designed to provide relief as part of the Obama administration’s economic stimulus program, according to a new federal watchdog report disputed by the Internal Revenue Service.


As many as 2.1 million taxpayers may have erroneously claimed a total of $3.2 billion by taking advantage of the American Opportunity Tax Credit, which provides up to $2,500 in relief for college students paying tuition and related expenses. The tax credit, once known as the Hope Scholarship Credit, was expanded as part of the 2009 economic stimulus program.

According to a report by the Treasury Inspector General for Tax Administration set for release Thursday, 1.7 million taxpayers received $2.6 billion in education credits that appear to be erroneous based on IRS records.

More than 370,900 ineligible individuals also earned an estimated $550 million in credits despite not attending classes for the required amount of time or because they were ineligible postgraduate students, the report said. Another 63,700 taxpayers received $88.4 million in credits while also being claimed as a dependent or spouse on another person’s tax returns, it said.

And — as is often the case with tax fraud — the report said 250 prisoners took advantage of the tax credit and erroneously earned a total of $255,879.

The IRS disputed the findings Wednesday, noting that some of the 1.7 million allegedly ineligible taxpayers could claim the credit without filing a tuition statement, known as Form 1098-T.

“We recognize that there will be incorrect claims and we will take steps to correct them,” IRS spokesman Terry Lemons said in an interview.

The education tax credit “is making a difference for 9 million students and their families every year,” Lemons said. “We think it’s misleading for TIGTA to say that the problems are of this scope.”

But as of July, IRS audits concluded that 72 percent of the more than 1,400 high-risk claims it had reviewed were indeed erroneous, TIGTA said.

Taxpayers who are found to have erroneously claimed the credit could face an audit and have to pay interest and penalties, Lemons said, adding that they may file an amended tax return.

TIGTA, which tracks IRS operations, and other federal watchdogs are required by law to monitor spending tied to the $819 billion economic stimulus program. In recent months, other watchdog reports have faulted federal agencies for slowing the distribution of stimulus dollars and stimulus recipients for failing to pay hundreds of millions of dollars in unpaid taxes.

An earlier version of this story incorrectly said that an IRS review had determined that 72 percent of the 2.1 million taxpayers in question had erroneously claimed the tax credit. Just 72 percent of 1,477 high-risk audits reviewed by the agency were found to be erroneous.

Follow Ed O’Keefe on Twitter: @edatpost

Further reading:

Report: Stimulus recipients owe $750 million in taxes

Some stimulus money isn’t being spent as fast as promised, report says

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