Washington, DC – Oversight Subcommittee Chairman Charles Boustany (R-LA) today said he is dismayed and concerned by the lack of progress by the Internal Revenue Service (IRS) to prevent erroneous payments of education tax credits.  A new report by the Treasury Inspector General for Tax Administration (TIGTA) reveals that the IRS paid $3.2 billion in erroneous American Opportunity Tax Credits (AOTCs) during the first five months of 2010.  

“The IRS is failing to protect taxpayer dollars and must take stronger steps to ensure education credits should go to those who deserve them.  In this case, taxpayers potentially lost $3.2 billion dollars.  Enough is enough – it’s time for the IRS to start taking proactive measures to stop erroneous payments on the front end,” Boustany said.

The AOTC, a byproduct of the American Recovery and Reinvestment Act, provides up to $2,500 per student for the first four years of post-secondary education – up to $1,000 of which is refundable.  The AOTC is available through 2012.

TIGTA found that:

• An estimated $2.6 billion was paid to individuals who weren’t even attending college;
• $550 million went to students who didn’t attend school at least half-time or were in graduate school;
• $88 million went to students who were claimed as dependents on another’s tax return; and
• $256,000 was paid to 250 prisoners. 
  

The Inspector General went on to estimate that taxpayers could be on the hook for as much as $12.8 billion in erroneous credits over the life of the AOTC unless IRS corrects the problem.

The new report comes on the heels of a series of stories detailing erroneous payments of refundable tax credits.  The findings in these stories include: $17 billion in erroneous payments for the Earned Income Tax Credit, $513 million for the Homebuyer Credit, and $4.2 billion in Additional Child Tax Credits paid to individuals not authorized to work in the United States.  According to government reports, in less than a decade, improper payments arising from refundable tax credits have cost taxpayers an estimated $106 billion – more than the fiscal year budgets of the Departments of Homeland Security, Justice, Treasury, and Transportation combined.