According to a new report from Treasury Inspector General J Russell George, the IRS paid out $5.6 billion in education credits to more than 3 million people who aren't qualified to receive them.
First, some background.
The Taxpayer Relief Act of 1997 created two permanent education tax credits, the Hope Credit and the Lifetime Learning Credit. The American Recovery and Reinvestment Act of 2009 temporarily replaced the Hope Credit with a refundable tax credit known as the American Opportunity Tax Credit (AOTC). The AOTC was initially set to expire at the end of Calendar Year 2010 but has since been extended through Calendar Year 2017.
Education tax credits help taxpayers offset the costs of higher education and have become an increasingly important component of Federal higher education policy. The amount of education credits individuals claim each year has increased from more than $3 billion for Tax Year 1998 to almost $19 billion for Tax Year 2012. Figure 1 shows the amount of education credits taxpayers claimed for Tax Years 2009 through 2012.