A government watchdog has identified $5.6 billion in bogus education tax credit claims, and the rate of fraud seems to be growing. But Internal Revenue Service officials still say their fraud-catching processes are adequate.
The likely fraudulent education credits were paid out to 3.6 million taxpayers in 2012, the Treasury Inspector General for Tax Administration reported Tuesday, 1.5 million more than investigators found in 2011. The bogus claims represent almost one-third of the $19 billion doled out in 2012 for education credits.
The tax break, known as the American Opportunity Tax Credit, was made available by the American Recovery and Reinvestment Act of 2009 and is intended to offset the cost of college.
“The IRS still does not have effective processes to identify erroneous claims for education credits,” Inspector General J. Russell George 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.”
IRS officials, however, argued that the agency can effectively detect erroneous education credit claims. Investigators noted that the agency’s processes only caught about half the questionable claims.
The inspector general also reported in 2011 that 2.1 million taxpayers received $3.2 billion in likely fraudulent education credits.
The inspector general reported around 2 million taxpayers received $3.2 billion in 2012 for education credits without providing a required form that proves they paid tuition. Another 1.6 million taxpayers received an estimated $2.5 billion in credits for students attending ineligible schools.
More than $650 million in education credits was given to 420,000 taxpayers, though they had made claims for more than four years — the limit for the credit. Nearly 430,000 taxpayers received around $662 million in credits for students who attended school less than half-time, investigators found.
Also, investigators reported that nearly 40,000 of the total claims worth $61.5 million were for students who were either under 14 years old or over 65 years old. Similarly, the 2011 report showed that nearly 43,000 taxpayers received $58.5 million in credits for students in those same age ranges.
Another 2,100 claims worth nearly $4 million were for students that were in jail for all of 2012, making it unlikely for them to be full-time students. That’s almost 16 times more than the $256,000 in credits for incarcerated students reported in 2011.
About half the claims were prepared by a tax return preparer. The inspector general reported about the same percentage in September 2011, even though IRS officials developed an enforcement strategy following the report.
