The IRS handed out $5.6 billion in erroneous education credits according to the Treasury Inspector General for Tax Administration, a situation that led Sen. Orrin Hatch, chairman of the Senate Finance Committee, to question if the agency is qualified to administer the credits.
 
The list of education tax credits the Internal Revenue Service dispensed in error in fiscal year 2012 was extensive, according to a Treasury Inspector General for Tax Administration report released May 5.
 
According to TIGTA, approximately 2 million taxpayers received more than $3.2 billion in education credits for students with no Form 1098-T, Tuition Statement. In addition, more than 1.6 million taxpayers got about $2.5 billion in education credits for students attending ineligible institutions and more than $650 million was paid to some 419,000 taxpayers for students who were used to claim the American Opportunity Tax Credit for more than four tax years.
 
TIGTA concluded the IRS needs to do a lot more to improve in this area, and still does not have the appropriate processes in place to properly administer the credits.
 
The IRS said it has taken action, such as making changes to a key form in 2012 that reduced the number of claims by $4.5 billion in one year. It also said it needs to access other government databases so that it can validate student eligibility, and disallow credits more easily. That could be accomplished through legislation, its statement said.
 
Text of TIGTA's report, "Billions of Dollars in Potentially Erroneous Education Credits Continue to Be Claimed for Ineligible Students and Institutions" (No. 2015-40-027), is located here.