More than $9 million in first-time homebuyer tax credits went to individuals incarcerated when they reported that they had purchased their home – and that’s just a fraction of the fraud or errors uncovered in the incentive program, said the U.S. Treasury’s Inspector General for Tax Administration.
Of those, 241 prisoners were serving life sentences when they claimed they had bought their first home.
In a reported released today, the watchdog estimated that 14,132 individuals erroneously received credits totaling $26.7 million, including 1,295 prisoners.
“This is very troubling,” said J. Russell George, the Treasury Inspector General for Tax Administration (TIGTA). “Congress created and modified the Homebuyer Credit to stimulate the economy and help taxpayers achieve the American Dream, not to line the pockets of wrongdoers.”
The findings were a result of claims reviewed from 2008 U.S. individual income tax returns and amended returns.
The first-time homebuyer program provided up to $8,000 in tax credits. Congress approved a series of provisions that enabled homebuyers to claim the credit on their 2008, 2009 and 2010 tax returns.
The Internal Revenue Service estimates that 1.8 million taxpayers received $12.6 billion in homebuyer credits through the end of February 2010. In November, the program was expanded to include repeat home buyers who could qualify for up to $6,500. The full program expired on April 30, 2010.
“While the IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate credits from being issued, our audit found that additional controls are necessary to address erroneous claims for the Credit,” George said.
By far the biggest misuse of the tax credit was the result of multiple individuals claiming credit for a single home. TIGTA reported that 10,282 taxpayers qualified for the incentive for homes that were also used by other taxpayers to claim the credit. In one case, 67 taxpayers were using the same home to claim the credit.
Some of the tax credit payments involved IRS employees, TIGTA found. At least 34 IRS employees claimed the credit, despite indications that they owned a home within the past three years. An additional 53 IRS employees were targeted for similar errors in an August 2009 TIGTA report.
TIGTA recommended that the IRS:
- Conduct an analysis to identify multiple taxpayers claiming the same home for the credit, and perform post-refund examinations to ensure that refunds for the invalid claims are recovered;
- Identify claims for homes purchased prior to the effective date of the legislation;
- Increase scrutiny of questionable claims for the Homebuyer Credit on amended tax returns;
- Improve the collection of data on the national prisoner population.
The IRS agreed with the recommendations, TIGTA said.
