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Millions in tax credits went to people who didn't qualify

Inspector general faults IRS for paying out $513 million in questionable claims for homebuyer tax credit. Agency says it caught many bogus claims.

By MSN Money Partner Apr 15, 2011 12:41PM

This story is by Stephen Ohlemacher of The Associated Press.


The Internal Revenue Service has paid out more than a half-billion dollars in homebuyer tax credits to people who probably didn't qualify, a government investigator said Friday.


Most of the $513 million -- about $326 million -- went to more than 47,000 taxpayers who didn't qualify as first-time homebuyers, said the report by J. Russell George, the Treasury inspector general for tax administration. Other credits went to prison inmates, taxpayers younger than 18 and people who did not actually buy homes.


"The IRS has taken positive steps to strengthen controls and help prevent the issuance of inappropriate homebuyer credits," George said. "However, many of the actions occurred after hundreds of thousands of homebuyer credits had already been issued, including fraudulent and erroneous credits totaling millions of dollars."


The popular credit provided up to $8,000 to first-time homebuyers and up to $6,500 to qualified current owners who bought another home during parts of 2009 and 2010.


The IRS said it worked hard to enforce a complicated tax credit that provided more than $27 billion to almost 3.9 million taxpayers. The agency said it corrected math errors on more than 370,000 returns and audited more than 400,000 taxpayers claiming the credit, denying hundreds of thousands of questionable claims. In all, the agency said its enforcement efforts saved more than $1.3 billion and identified more than 200 criminal schemes.


The agency questioned some of the inspector general's findings, but said it would follow up on the report and continue working to recoup any credits that were incorrectly paid out.


The tax credit for first-time homebuyers was part of President Barack Obama's economic recovery package enacted in 2009. In November 2009, Congress extended the credit and expanded it to longtime owners who bought new homes.


Homebuyers qualifying for the credit had until April 30, 2010, to sign purchase agreements. They had until Sept. 30 to complete their purchases, after Congress extended the deadline. The extensions and expansion of the credit created a complicated system that made it hard for many taxpayers to determine which credit they qualified for, if any. There were also income requirements.


"The timing and differences in the various legislative provisions also created complexity and confusion for taxpayers and return preparers, as well as the real estate industry," the IRS said in a written response to the audit. "The IRS addressed this challenge by providing timely, understandable, and extensive outreach and education to the public, Nevertheless, this complexity undoubtedly contributed to numerous errors and erroneous claims."


Friday's report is the latest in a series of audits George has conducted on the homebuyer tax credit. It says the agency paid out $513 million in questionable claims for the homebuyer tax credit.


Among the findings:

  • More than 47,500 taxpayers claimed the first-time homebuyer credit even though there was evidence on previous tax returns that they had already owned a home, including deductions for mortgage interest, real estate taxes and mortgage insurance. The report estimated these people claimed $326 million in credits.
  • More than 13,400 taxpayers claimed the credit even though they had not yet purchased a home. These people listed future purchase dates on their tax forms. The report estimated these people claimed $97.8 million in credits. The IRS said it believes these estimates are overstated.
  • More than 1,000 taxpayers said they purchased homes while they were incarcerated in prison, claiming $7.7 million.
  • More than 2,500 taxpayers claimed credits for buying homes for which at least one other taxpayer also claimed the credit for buying. These taxpayers received $11.4 million.
  • More than 2,700 taxpayers claimed credits for homes that were purchased before the tax credit went in effect. These taxpayers received $17.6 million.
  • The IRS disallowed $531,134 in tax credits claimed by 96 taxpayers who were under age 18, making it unlikely they purchased a home.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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They worked really hard and did catch some bogus claims. This makes it ok? Are they going to recover the money, not likely. Probably cost more than they spent. After all it was only a few million dollars. Why does it seem that the government agencies are working less and less. Because it is not their money?
Apr 15, 2011 3:09PM

Thank goodness my tax dollars are going to something worthwhile.    Like people in prisons (that my tax dollars keep in business) and IRS employees who spend my tax dollars on prisoners who need tax breaks.


I run a business which have to guess a year in advance how much money my business will make and if I don't I get penalized.    They already know what their expenses will be for the year and they aren't penalized when they go over budget.   Makes ZERO sense for me to have to

know how much my business will do a year in advance.   I've worked in the public sector and even with variables such as snow removal - budgets are ridiculously easy to calculate.   My first year on the job I reduced our budget by 10% and each year after that for 2 more years and even with ridiculously over paid and increasing wages of union "labor" I managed to hold a tighter budget than previous personnel while improving customer service - e.g. potholes fixed sooner, preventative maintenance to prevent heating and cooling issues and expenses in public buildings, changing out electric heating systems reducing bills from $150,000 to $30,000 per year.  


Public sector mentality produces increased expenditures without reproductions.


Apr 15, 2011 2:51PM
damn i guess the country should take your mistakes out of your pay.
Apr 15, 2011 2:50PM
stealing by deceit? punishable by law?
Apr 20, 2011 4:08PM
Why is the media always rubbing this in our faces?  If the IRS made a mistake and allowed a filer a credit they did not deserve, they should be taking it back off next years taxes and never giving them a refund until the entire amount is repaid.  How difficult is that to understand?  These people that were under 18 years of age, they will be filing for a lifetime.  The problem they have with prisoners filing and claiming to purhase a home, well, they have a lot of prisoners committing welfare fraud and all kinds of things from prison.  It is not that difficult to put a stop to that.  They have obviosuly identified who did it.  They can tack on additional prison time and shut off their ability to do it.  This government allows fraud to go on to the tune of billions of dollars and claim it is too expensive to stop.  That's crap.  It's another example of the fact that some of the people in the government agencies are participating in the fraud.  If they can't stop this kind of thing, I would support a straight percentage tax structure.  It's not right for people with children and rich people to get all the breaks, and the rest of us to pay for it. 
Apr 18, 2011 10:10PM

If the IRS would like better compliance with the tax laws, perhaps they should write the instructions that actually made sense.  I'm sure the outcome is what they desire, but to get to that number is mindboggling. They might try explaining the worksheets before jumping into the mumbo jumbo. Of the 200,000 employees, surely one could take one set of instructions per year and clarify them. When accountants, lawyers and educated people cannot understand the tax code, something is very wrong, or it's deliberate. No company could run on such complexity in simple accounting.   

Apr 16, 2011 8:29AM
I make 24K a year, 25% of it goes to the big 4 withholdings - I pay My share - no credits allowed.

the IRS increase the audit to the rich people and have hundreds of thousand of peoples who are not rich but they under report their income, in a way that is very simple to identified, you don't have to be a genius, how can you live with 2 dependents and 5000$ salary, you got to be

stupid not to see the situation, but that s is the IRS, they don even have to do an audit just sent a letter requiring to prove any situation and deny the credit until its satisfied

I don know if they are short-handed, i do know that many of the people working for the IRS,

have no idea of what they are doing, is more you call asking a question and they have to read

publication 17, no wonder so many blunders


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