Sunday, October 25, 2009

Home buyer tax credit fraud nets $600 million

Black Barbie's back, wrapped
in plenty of plastic controversy
A federal audit revealed this week that nearly 90,000 taxpayers may have fraudulently enjoyed the first-time home buyer tax credit, hoodwinking the government out of more than $600 million.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - If you bilked Uncle Sam out of a first-time home buyer tax credit, start looking over your shoulder

Wait, better yet, turn yourself in and beg for mercy.

The Internal Revenue Service will likely audit your tax return. Tax fraud is a felony.

On the other hand, the IRS may get in touch with you to let you know you are due a lager first-time home buyer tax credit.

As Congress considers extending the first-time home buyer tax credit, a federal audit revealed this week that nearly 90,000 taxpayers may have fraudulently enjoyed the credit, hoodwinking the government out of more than $600 million.

The Treasury Inspector General for Tax Administration (TIGTA) said the Internal Revenue Service may have allowed about 70,000 taxpayers to claim approximately $480 million in tax credits even though there were "indications" that they were not first-time homebuyers.

The rules define a "first-time" buyer as one who has not owned a home in the past three years.

Another group, more than 19,000 taxpayers, claimed about $140 million in credits for homes they had not yet purchased. If they closed later they may have been eligible for the credit, but could be audited to verify the purchase anyway.

Current rules say you must actually close escrow and provide proof to apply for the credit.

Among the alleged defrauders, the audit found 582 taxpayers who claimed almost $4 million in credits were under 18 years of age and as young as 4 years old. The tax credit is only eligible for those 18 and older.

Cheating the IRS is a federal felony that comes with a fine of up to $250,000 and three years in a federal pen, or both.

Another group of about 48,000 taxpayers didn't get the full credit, but likely because they weren't aware they were eligible.

As part of the Housing and Economic Recovery Act of 2008, Congress first created a $7,500 tax credit for those who purchased a home between April 8, 2008, and July 1, 2009.

Later, under the American Recovery and Reinvestment Act of 2009, Congress extended the credit and raised it to an $8,000 tax credit for those who purchased homes by the current Nov. 30, 2009 expiration date.

By October 9, 2009, more than 1.2 million tax returns had claimed about $8.5 billion in the refundable tax credit, according to TIGTA.

The report said the frauds were able to snooker the IRS because the agency didn't originally use recommended controls available on IRS Form 5405 to prevent fraud. IRS also didn't require taxpayers to provide documentation to verify their eligibility.

The IRS says it is tracking down the frauds and taking corrective measures to prevent future problems with the credit.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

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