​About 1.7 million taxpayers may have erroneously received more than $2.6 billion in education tax credits, according to a federal report.

The new report from the Treasury Inspector General for Tax Administration (TIGTA) noted that taxpayers received an estimated $550 million in education credits for which they were ineligible because they did not attend college for the required amount of time or they were post-graduate students. Federal law requires that students must be enrolled at least half-time at an accredited college or university, and that they must be in their first four years of postsecondary education.

The 2009 American Recovery and Reinvestment Act created the refundable tax credit called the American Opportunity Tax Credit (AOTC) to help taxpayers offset higher education costs. The credit has been extended to 2011 and 2012 tax returns.

The Internal Revenue Service (IRS) initially did not agree with the report's number of erroneous claims, but it has subsequently said that it has found a high percentage of the claims with no supporting documentation. The agency plans to increase its scrutiny of tax returns claiming the credit.

The report also said that 84,754 students without a Social Security number were claimed by taxpayers who received $103 million in education credits. Although the students had federal taxpayer identification numbers, they do not serve as proof of citizenship, the report noted.

Other potential errors:

• 63,713 taxpayers erroneously received $88.4 million in education credits for students claimed as dependents or spouses on another taxpayer’s tax return.
• 250 prisoners erroneously received $255,879 in education credits.

It appears that many third-party tax preparers also failed to help correctly file for the credit. An estimated 52 percent of the returns with potentially erroneous credits were prepared by paid tax preparers, who should have been aware of the eligibility requirements, the report said.

“Based on the results of our review, the IRS does not have effective processes to identify taxpayers who claim erroneous education credits,” TIGTA Director J. Russell George said in a statement. “If not addressed, this could result in up to $12.8 billion in potentially erroneous refunds over four years.”

TIGTA made 11 recommendations to fix the problems, including: revising the tax form for claiming education credits, working with the U.S. Department of Education​ to assess how to use its data in processing tax returns, and revising compliance programs to identify taxpayers who erroneously claim the credit.