Many parents wrongly claim college tax credit

/ Source: The Associated Press

More than 314,000 taxpayers made inaccurate claims for a popular tax credit that helps pay college expenses, getting $532 million they weren't entitled to receive, a government report said Thursday.

The Hope Credit provides up to $1,650 a year to help pay expenses for the first two years of college. The taxpayers claimed the credit for the same student for three consecutive years, instead of the two years available, said a report by the Treasury inspector general for tax administration. Auditors reviewed two three-year periods, ending in 2006 and 2007. About 58,000 claimed the credit for a fourth consecutive year in 2007.

The report said the Internal Revenue Service needs better tools to detect and fix inaccurate claims, and the IRS agreed. The problem should temporarily ease since Congress has expanded the credit to four years of college, for those claiming the credit in 2009 and 2010.

"The Hope Credit is intended to help taxpayers pay for the ever increasing cost of higher education," said J. Russell George, the Treasury inspector general for tax administration. "It is imperative that the IRS works with the Treasury Department and Congress to obtain the tools it needs to effectively administer this important credit."

The report recommended that Congress authorize the IRS to fix tax returns that incorrectly claim the credit, much in the same way the agency fixes routine math errors. It also recommended new reporting requirements to help the IRS match expenses claimed by students with those reported by schools.

"We agree with your findings and believe improvements are needed to ensure eligible students receive the benefits they deserve and taxpayers claiming inappropriate credits are denied those benefits," Richard Byrd Jr., commissioner of the IRS wage and investment division, wrote in a response to the report.

The college tax credit was expanded for 2009 and 2010 as part of the economic stimulus package enacted in February. For those years, taxpayers can get up to $2,500 to help pay for up to four years of college for each student.