• IRS Accidentally Blew $5 Billion On Bogus Tax Credits

    The Internal Revenue Service let more than $5 billion in bogus education tax credits be claimed under an Obama administration 2012 stimulus effort, according to a report released Tuesday by the agency’s inspector general.

    A whopping 3.8 million students were allowed to claim about $5.6 billion in tax credits that, in hindsight, appear to have been questionable or outright fraudulent, the report found. That’s hardly a small figure, as $5.6 billion amounts to more than 25 percent of all education credits given out by the government, an extraordinarily high level of inefficiency and waste. Not only that, but the IRS still hasn’t found an effective way to stop more faulty credits from being claimed in the future.

    “The IRS still does not have effective processes to identify erroneous claims for education credits,” says the report. “Although the IRS has taken steps to help address some of our recommendations, many of the deficiencies [the inspector general] previously identified still exist. As a result, taxpayers continue to receive billions of dollars in potentially erroneous education credits.”

    Specifically, the report finds that about $3.2 billion in credits was granted to about 2 million taxpayers who didn’t file the proper form to claim it, and about $2.5 billion in credits was given to students who were attending academic institutions that do not qualify for them. Another $650 million was lost to about 400,000 taxpayers for claiming the American Opportunity Tax Credit for more than its maximum of four years.

    The report doesn’t just fault the IRS, but also Congress, which it says should grant the IRS more authority to use government databases to check student’s claims. The report also urges the government to increase IRS funding so that it can hire more personnel. The agency has lost several thousand employees since 2010, and the report argues that this has led to a manpower shortage and an inability to audit every questionable tax credit claim.

    Still, Republicans have pounced, arguing that the wasted credits are another sign of ineffectiveness in Obama’s executive branch.

    “This partially refundable tax credit was established as part of the stimulus, but unfortunately, as today’s report shows, the IRS has only succeeded in stimulating waste by not effectively identifying erroneous claims,” Sen. Orrin Hatch, chair of the Senate Finance Committee, said in a statement. “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.”

    The new report is a depressing sequel to an earlier one issued in 2011. In that report, the inspector general’s office found over $3 billion in questionable credits.

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