Millions of American taxpayers may have erroneously claimed an education tax credit last year that was 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 a college student 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 released 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 received 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 return, it said.
And the report said 250 prisoners used the tax credit and received a total of $255,879.
The IRS disputed the findings, 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.”
The report said that the IRS as of July had concluded that 72 percent of about 1,400 high-risk claims that were reviewed were erroneous. The IRS conceded that those numbers were likely to rise.
Taxpayers 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.