May 6, 2015

IRS gave out billions of education tax credits for phony claims -- again

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.

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