Beware of Scams Involving Education Credits

By Marcia Richards Suelzer, Toolkit Staff Writer

Promoters of a new tax fraud are targeting senior citizens, church members and people who have little or no income by making bogus claims of free money tied to claiming the American Opportunity Tax Credit. In recent weeks, the IRS has identified and stopped an upsurge of these bogus refund claims coming in from across the United States; the IRS is actively investigating the sources of this scheme, and its promoters can be subject to criminal prosecution.

These con artists claim they can get a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. A variation of this scheme also falsely claims the education credit is available to compensate people for paying taxes on groceries.

Tip. Only "qualified education expenses" that you paid during the tax year can be used to compute American Opportunity Tax Credit, the Lifetime Learning Credit or the deduction for tuition and fees. While definition of qualified expenses varies slightly for the different tax breaks, none of them include living expenses.

These schemes can be quite costly for victims. Promoters may charge exorbitant upfront fees to file these claims and are often long gone when victims discover they've been scammed. Regardless who prepared your return--or the advice you were given--you are legally responsible for the accuracy of your tax return. You will have to repay, with interest, any erroneous refund. In addition, you may be liable for penalties and could even face criminal prosecution.

To avoid becoming ensnared in these schemes, the IRS says taxpayers should beware of any of the following:

• Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
• Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
• Internet solicitations that direct individuals to toll-free numbers and then solicit Social Security numbers.
• Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
• Offers of free money with no documentation required.
• Promises of refunds for "Low Income - No Documents Tax Returns."
• Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
• Unsolicited offers to prepare a return and split the refund.
• Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.

You are unlikely to fall prey to a con artist if you remember one simple rule: Every tax provision has eligibility and documentation requirements. For example, if you are eligible for an education tax break, you will receive Form 1098-T, Tuition Statement from each educational institution that states the qualified expenses during the tax year. While you might not be required to submit this documentation to the IRS when you file your initial return, you will be required to produce it if your return is audited.