The Internal Revenue Service failed to ensure that only eligible taxpayers received education credit tax relief that was only supposed to be available to taxpayers in Midwestern disaster areas, according to a new government report.

In an audit, the Treasury Inspector General for Tax Administration found that taxpayers who claimed more than the standard maximum amount of the Hope Credit received approximately $224,504 more than they were entitled to receive. IRS records indicated that many of those credits were claimed for students who had not attended educational institutions in the Midwestern Disaster Area or had not attended any school. Based on these data, TIGTA estimates that taxpayers filing 48,940 tax returns with such claims erroneously received almost $55.8 million in excessive Hope Credits for tax year 2008.

“The findings of this audit are very troubling,” said TIGTA Inspector General J. Russell George in a statement. “This credit was provided to assist those in need, and abuse of it cannot be tolerated. The returns of taxpayers who have improperly received an excessive amount of the Hope Credit should be examined, and any excessive amounts claimed should be recovered. Additional steps must be taken to ensure that taxpayers qualify for this benefit.”

The tax credits are designed to help taxpayers offset the costs of higher education. In 2008, Congress passed the Heartland Disaster Tax Relief Act to benefit taxpayers affected by a major disaster, such as severe storms, tornadoes or flooding that occurred in certain areas throughout the Midwest. One provision allows taxpayers with eligible students attending eligible educational institutions in designated Midwestern disaster areas to claim twice the qualifying amount of the Hope Credit. For tax year 2008, this increased the maximum amount of the Hope Credit from $1,800 to $3,600 for each qualifying student. The Hope Credit can be claimed for eligible students enrolled in their first two years of post-secondary education.

TIGTA made four recommendations to the IRS in its report, and the IRS agreed with three of those recommendations and partially agreed with one recommendation.

The IRS should ensure that only qualifying taxpayers are allowed to receive more than the normal maximum amount of Hope Credit allowed. Taxpayers that have improperly received an excessive amount of credit should be examined, and any excessive amounts claimed should be recovered. Additional steps should also be taken to ensure that taxpayers qualify for the additional amount.

The IRS should also ensure adherence to increased maximums on any future provisions. IRS management agreed to conduct examinations of improper claims, evaluate the feasibility of an automated process to verify claims, update computer processing controls to limit the amount of credit that can be claimed, and make modifications to forms to increase compliance in the future.

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