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Requirements to Claim Education Tax Credits to Tighten in 2016

Posted by McDonald & Osborne Posted on Oct 15 2015

In 2011, a report by the Treasury Inspector General for Tax Administration identified 2.1 million taxpayers receiving $3.2 billion in education credits that appear to be erroneous, at least 1.1 million of which (52 percent) had tax returns prepared by a paid tax preparer.

More specifically:

  • 84,754 students without Social Security numbers received $103 million in education credits
  • 370,924 taxpayers who were not enrolled in school for a long-enough time period, or were enrolled in graduate programs, received $550 million
  • 250 prisoners received $255,879 in tax credits
  • 63,713 taxpayers erroneously received $88.4 million in education credits for students claimed as a dependent or spouse on another taxpayer’s tax return
  • 1.7 million taxpayers received $2.6 billion in education credits for students for whom there was no supporting documentation in IRS files that they attended an educational institution.

After its release, the IRS disputed the report’s findings suggesting that the majority of cases identified as erroneous stemmed from an inability to match taxpayer filings with data provided by colleges and universities, but agreed to reform it’s procedures.

Fast forward to the present – Beginning with the filing of 2016 tax returns (filed in 2017), taxpayers will be required to have a 1098-T form from the college or university in hand before they claim the American Opportunity tax credit , Lifetime Learning tax credit or deduction for tuition and fees . The idea behind the new requirement is to help the IRS better verify that claims for education credits and deductions are valid.

Stephen Osborne, CPA
Certified Public Accountant

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