WASHINGTON — The IRS issued $5.6 billion of potentially bogus education tax credits in a single year — more than a quarter of all education credits claimed by taxpayers, a government watchdog said Tuesday.
A report by the agency’s inspector general says questionable credits were issued to more than 3.6 million taxpayers in 2012. Most went to students even though the IRS never received a tuition statement from the school.
Some students attended schools that weren’t eligible for federal funding, and others didn’t take enough classes to qualify for the tax break.
“The IRS still does not have effective processes to identify erroneous claims for education credits,” said J. Russell George, Treasury inspector general for tax administration.
George said the IRS has taken some steps to better police the credits but has not addressed all the deficiencies that George’s office identified in a 2011 report. In that report, the inspector general said the IRS issued $3.2 billion in potentially bogus education tax credits in 2010.
“The IRS owes it to American families and hardworking taxpayers to properly safeguard their hard-earned dollars and not dole them out to people who are not qualified to receive such credits,” Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee, said in a statement.
There are two main education tax credits:
• The American Opportunity Tax Credit offers up to $2,500 a year to help pay for tuition and other expenses. Students must be in a program that leads to a degree. Students can claim this credit for up to four years.
• The Lifetime Learning Credit pays 20 percent of tuition and other education expenses, up to a maximum of $2,000. There is no limit on the number years this credit can be taken, and students don’t have to pursue a degree.
