Recent Tax Updates

IRS Outreach and Compliance Efforts for Education Credits

October 23, 2013

As part of a broader strategy to increase oversight on refundable tax credit claims, the IRS has begun to look more closely at claims for the American Opportunity Credit (AOTC) — one of the two education credits on Form 8863. As part of this effort, the IRS is expanding their educational outreach to taxpayers and preparers as well as increasing their scrutiny of returns that are claiming this credit.

Outreach Efforts to Preparers

The IRS has added a new section to their EITC Central website for Other Refundable Credits. One part of this new section is devoted to the AOTC and the Lifetime Learning Education Credit (LLC).

On the What You Need to Know about AOTC and LLC page, the IRS has provided the following to assist return preparers in understanding the American Opportunity and Lifetime Learning Education credits:

  • Explaining the eligibility requirements, Form 1098-T, Form 8863, and how to avoid the most common errors related to the American Opportunity Credit.

  • Links to relevant publications, forms, and instructions.

  • Information on what questions a preparer should ask their customers about refundable credits.

  • Education benefit videos.

Compliance Efforts

In an effort to reduce the number of errors that the IRS believes are occurring on returns that are claiming the American Opportunity Credit (AOTC), they have started to do the following:

  • Implemented an Automated Questionable Credit Program to more closely review claims for which the AOTC is claimed for a student whose age is not typical of someone attending college before the refund is issued. This is mainly directed to claimants that are under age 13.

  • Selecting returns for examination that are claiming the AOTC where the student(s) age is not typical of someone whom attends college.

  • Sending educational letters to taxpayers explaining the eligibility requirements for the credit.

For preparers, the IRS will begin to focus their efforts on tax preparers who are preparing 25 or more returns that have claimed the AOTC and where it appears that the preparers have had errors associated with these returns as follows:

  • Send educational letters to the preparers explaining the eligibility requirements for the credit.

  • Modify the selection process for the Automated Questionable Credit Program to target more taxpayer returns that have been completed by preparers whom the IRS has determined are at high risk for completing inaccurate AOTC claims.