Tax News

CCH (cch.taxgroup.com) reports:

Educational tax credits are too complex to benefit low income families and students, according to government and industry witnesses testifying at a hearing of the House Ways and Means Select Revenue Measures Subcommittee on May 1. Michael Brostek, director of tax issues for the Government Accountability Office (GAO) Strategic Issues Team, said tax preferences require more responsibility from students than aid received under Title IV of the Higher Education Act of 1965. In order to use education tax credits, students must identify applicable tax preferences, understand complex rules concerning their use, and correctly calculate and claim credits or deductions, Brostek explained.
According to GAO research, the number of taxpayers using educational tax credits is growing quickly, surpassing even the number of those who receive title IV aid. However, Brostek noted that some taxpayers do not make the best use of tax subsidies because are too difficult to understand and use correctly. In tax year 2005, GAO analysis indicated that 19 percent of eligible tax filers did not claim either the tuition deduction or a tax credit. Using the tax preferences would have reduced tax liability by an average of $219. "Perhaps due to the complexity of the tax provisions, hundreds of thousands of taxpayers fail to claim tax preferences to which they are entitled or do not claim the tax preference that would be most advantageous to them," he said.
Karen Gilbreath Sowell, Treasury Deputy Assistant Secretary for Tax Policy, said students and families facing immediate education-related costs must make sense of a patchwork of education-related tax incentives. The tax code includes credits, deductions, exclusions and deferrals that are numerous, overlapping and complex, Sowell testified. "The incentives vary in terms of who may receive benefits, which expenses may be covered, and how large an exclusion, deduction, or credit may be allowed," she said.
In addition, the complexity of the educational tax incentives increases the record-keeping and reporting burden on taxpayers, and makes it difficult for the IRS to monitor compliance, she testified. Although she noted the congressional efforts to streamline education tax incentives, Sowell encouraged lawmakers to be mindful of the non-tax benefits to students from federal and state governmental programs or from private-sector sources.
By Stephen K. Cooper, CCH News Staff
Treasury Department News Release, TDNR HP-955