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Tax Credit Fraud...BIG surprise! NOT...

By
Real Estate Agent with Lake Homes Realty 78543-1

Homebuyer Tax Credit Fraud Puts Pressure on Further Extensions


As many readers of this site await to hear about a possible extension to the home buyer credit closing date, part of the latest Jobs and Tax Bill (HR4213), it was worrying to read some of the recently released IRS statistics on fraud surrounding the credit.

The IRS  doled out more than $27 million in fraudulent claims for the home buyers' tax credit on returns for 2008, including claims by prisoners serving life sentences and people who purchased their home before the credit was in effect, according to a U.S. Treasury Department report. One group in particular, 1200 prison inmates, including 241 serving life sentences, defrauded the government of $9.1 million in tax credits reserved for first-time home buyers.

Treasury's inspector general also found that thousands of people filed multiple claims or made claims outside the allotted time period. The home buyer tax credit program was very specific about the time period in which home buyers were allowed to participate, though this rule seems to be the most widely violated. The credit was for home purchases that happened after April 8, 2008, with a cut-off date that was eventually extended to May 1, 2010. [with another extension to September 30 in the works now!]. The report found that the IRS awarded $17.6 million to 2,555 filers who had bought their homes before the credit program kicked in.

"Additional controls are necessary to address erroneous claims for the credit," the report stated. "Further, fraudulent and questionable claims processed prior to implementation of controls will need follow-up action by the IRS."

The inspector general also identified 206 filers who claimed the credit for multiple addresses; these fraudulent filers were awarded a total of $1.4 million. The report also found that improper filers included 34 employees of the IRS. This is in addition to 53 IRS employees that the inspector general identified last year as improper filers.

The report included a response from the IRS, which highlighted the huge scope of the program, with $12.6 billion in claims awarded to 1.8 million participants. It also said that despite its problems, the home buyer tax credit helped to spur more than 2.5 million new home purchases and helped to stabilize the housing market. Where there are questionable claims, the IRS has moved aggressively and successfully blocked or denied nearly 400,000 questionable home-buyer claims and opened more than 150 criminal investigations. These aggressive efforts have saved taxpayers more than $1 billion. The IRS has said it continues to ramp up efforts to crack down on criminal activity and would continue to review claims and "recapture" pay-outs determined to be fraudulent.

Overall, despite the above giving critics a platform for questioning the value of extending the credit, I think the home buyer credit stimulus has done more good than bad for the economy and home buyers/sellers. After all, even if you assume the same amount of fraud was committed in 2009 when the home buyer credit program was expanded, it still only makes up about 2% of the total program outlays. However, I do think that the level of fraud around this high profile stimulus payment means that anyone who is claiming the home buyer credit will more likely face an IRS audit in the future. So make sure you keep detailed records of your home buying transaction and the dates when the contract was signed and closing took place.

Comments (2)

Richard Shuman
The Only B.S. I Have is from the University of Massachusetts - Lake Mary, FL
Real Estate Broker - Orlando Area - Love Referrals

I am amazed there were not more false claims!

Jun 25, 2010 04:42 AM
Nicole Anderson
Lake Homes Realty - Pell City, AL
YOUR Community and Lake Expert

I was SHOCKED by the prisoners! 

Jun 25, 2010 07:43 AM