TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Friday, November 20, 2009

TIGTA: 372,000 Taxpayers Erroneously Claimed Education Tax Credits

The Treasury Inspector General for Tax Administration yesterday reported that 372,000 taxpayers erroneously claimed education tax credits in 2006 and 2007, totaling $532 million (an average of over $1,400 improper credit per taxpayer).  Improvements Are Needed in the Administration of Education Credits and Reporting Requirements for Educational Institutions (2009-30-141).

http://taxprof.typepad.com/taxprof_blog/2009/11/tigta-.html

IRS News, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef0120a6b8956f970b

Listed below are links to weblogs that reference TIGTA: 372,000 Taxpayers Erroneously Claimed Education Tax Credits:

Comments

TIGTA did not indicate how much in Hope Educational Credits were wiped out as a result to itemized deduction recoveries being illegally included in AGI and modified AGI phase-out calculations exclusions and credits. Apparently, TIGTA does not understand that inclusion of an itemzied deductions in the AGI and modified AGI phase-out calculation of deductions, exemptions, exclusions, eligibilities, and credits violates section 111(a) of the Internal Revenue Code.

The following question should help lead to an understanding of the problem with IRS instructions.

Precisely, in determining taxable Social Security benefits, what is it about the language in section 111(a) of the Internal Revenue Code that allows IRS to issue instructions that can result in the gross income attributable to an itemized deduction recovery exceeding the amount of the recovery?

Based on IRS instructions, a $500 state income tax refund can wipe out up to $425 of the Social Security benefit exclusion. For a single parent where there was an overlap of the Social Security benefit exclusion phase-out and the Hope Credtit phase-out in 2008, the tax attributable to a $500 state income tax refund could be up to $305 when the tax should have been only $75. Add a second student and the tax attributable to a $500 state income tax refund could have been up to $472 as opposed to a legitimate tax of $75.

Assume the two students were eligible for the Hope Credit in 2007 and the $500 of income used for the state income tax overpayment in 2007 reduced the Social Security benefit exclusion by $425 (increased AGI by $425 and tax by $64) and reduce the Hope Credit by $305, the tax on the $500 used for the tax overpayment could have been up to $369. Total tax attributable to $500 of real income when fully accounted: $841.

I guess this what is known as "GOOD ENOUGH FOR GOVERNMENT WORK!

Posted by: WD Kebschull | Nov 20, 2009 6:42:20 PM