Widespread Fraud with First-Time Homebuyer Credit

Widespread Fraud with First-Time Homebuyer Credit

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We have written before how refundable tax credits always seem to bring the bottom-feeders to the surface. Well, it’s happened again with the first-time homebuyer credit.

According to Paul Caron the Treasury Inspector General for Tax Administration today released a report titled Additional Steps Are Needed to Prevent and Recover Erroneous Claims for the First-Time Homebuyer Credit.

Here are the major findings:

In its new report, TIGTA estimates that 14,132 individuals received erroneous credits totaling at least $26.7 million. These erroneous credits included:

  • 2,555 taxpayers receiving credits totaling $17.6 million for homes purchased prior to the dates allowed by law.
  • Some of the improper payments involve IRS employees, TIGTA found. At least 34 IRS employees claimed the Credit despite indications that they owned a home within the past three years. This is in addition to the 53 IRS employees that TIGTA identified in August 2009.
  • 1,295 prisoners receiving credits totaling $9.1 million who were incarcerated at the time they reported that they purchased their home. These prisoners did not file joint returns, so their claims could not have been the result of purchases made with or by their spouses. Further, TIGTA found that 241 prisoners were serving life sentences at the time they claimed that they bought new primary residences.
  • 10,282 taxpayers receiving credits for homes that were also used by other taxpayers to claim the credit. (In one case, TIGTA found that 67 taxpayers were using the same home to claim the credit.) TIGTA auditors have not fully quantified the total of these erroneous credits, but all indications are that the total will be in the tens of millions of dollars.

And here is what I said about refundable credits and fraud in a blog post I wrote last November titled The Greedy Non-Rich:

And we thought only the rich were greedy and dishonest.

Refundable credits are a form of welfare and an invitation to commit fraud.¹

Paul Caron reports:

The Treasury Inspector General for Tax Administration yesterday [said] that 372,000 taxpayers erroneously claimed education tax credits in 2006 and 2007, totaling $532 million (an average of over $1,400 improper credit per taxpayer).  Improvements Are Needed in the Administration of Education Credits and Reporting Requirements for Educational Institutions (2009-30-141).

Similarly, fraud is rampant with respect to the earned income tax credit (EITC) and the new homebuyer credit.

This is what happens when you teach people that they are entitled to a portion of what someone else has earned. You create a society of moochers and thieves.

Footnotes:

¹  Fellow tax blogger Mary O’Keeffe was kind enough to point out that the education credit is currently not a refundable credit. Of course, that doesn’t detract from my larger point that refundable credits in general are rife with fraud and abuse.

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

Comments

  1. It should be noted that your footnote refers to a correction I made to your post at the time you made it last November, which discussed returns for tax years prior to 2009.

    Starting with the 2009 tax year returns (i.e., the ones that were due in 2010), the education credit now has both a refundable component and a non-refundable component.

  2. I still 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.