Investigator: 3.2 billion dollars in overpaid tax credits
Thursday, October 20, 2011
Investigator: $3.2 billion in overpaid tax
credits
By: Alan Fram, Associated Press
WASHINGTON (AP) -- More than 2 million taxpayers - including
some prisoners claiming students as dependents - apparently wrongly
collected $3.2 billion in college tax credits last year, according
to a report issued Thursday by a federal investigator.
The suspect credits represent more than a fifth of the $15.5
billion in college credits the report says went to nearly 8.9
million taxpayers through 2010.
The Internal Revenue Service disputed the findings, saying they
were vastly overblown and based on a faulty analysis. The IRS,
though, agreed to implement many of the recommendations the report
made to ensure that only eligible taxpayers receive the credit.
The program in question is the American Opportunity Tax Credit,
created in President Barack Obama's $825 billion economic stimulus
law of 2009 as an expansion of the Hope Scholarship Tax Credit.
Extended by Congress last year through 2012, it provides students
with tax credits of up to $2,500 annually, as long as their
families don't exceed income limits.
The report by the Treasury Department's inspector general for
taxes found that for the first five months of 2010, $2.6 billion
went to 1.7 million taxpayers for students for whom the IRS lacked
documents showing that they attended school.
Another $550 million went to 371,000 taxpayers for students who
didn't qualify because they didn't attend school long enough or
were graduate students.
Nearly 64,000 taxpayers received $88 million in credits for
students who were listed as a dependent or spouse on someone else's
tax return.
In addition, 250 prisoners who were in custody for all of 2009
erroneously got $256,000 in credits. IRS guidelines require a
taxpayer to provide at least half of someone's support before
claiming them as a dependent - which the report said was unlikely
for people in prison.
Just over half the tax returns in question had been filed by a
paid tax preparer, the report said.
"Based on the results of our review, the IRS does not have
effective processes to identify taxpayers who claim erroneous
education credits," the report said. It added that the IRS is not
ensuring that the stimulus funds are used "for authorized purposes
and that every step is taken to prevent instances of fraud, waste,
and abuse."
In a written statement Thursday, the IRS said the report
"substantially overstates" the wrongly paid tax credits. It also
said it was "inaccurate and unfair" for the inspector general to
conclude that credits had been erroneously paid in instances when
investigators could not match tax returns to information forms
colleges are supposed to file with the IRS about students.
The IRS agreed to adopt several of the recommendations that the
inspector general suggested, including revising tax forms to
require information on the college a student is attending and
trying to get information on students from the Education
Department.