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.

Subscribe via email or follow us on Facebook, Twitter or YouTube to get the latest news and updates

11 thoughts on “Homebuyer Tax Credit Fraud Puts Pressure on Further Extensions”

  1. RE: $8000.00 First Time Home Buyers

    I had to request an appeal for items listed.

    • Item# 1040x
    $8000.00 Tax Credit
    • Item# 8396 (Mortgage Taxes)
    • Item# Mortgage interest

    On January 6, 2010 my husband and I separated. I lived with family for total of 3 months, during that time I decided to purchase a home

    • I was approved for a mortgage on January 14, 2010.
    • Estimated close date of Mortgage loan 3/22/2010.
    • Lender stated since approved needed to obtain Legal separation papers in order to legally be free to convey real property or any interest without the consent of the other.
    • So I contacted attorney discussed options. Filed Separation papers and had ex-husband in agreement; recorded on 2/3/2010.(Copy enclosed)
    • Now prior to our marriage he owned the home that we lived in my name was never on that home at all. I hadn’t owned a home since year 2005.
    • We filed “Married Filing Jointly” 2009 taxes on 3/15/2010- we knew that once the 2009 taxes were filed we could eventually file form 1040x to the 2009 tax return.
    • We had several tax deductions in which attorney stated ok to continue and file joint.
    • Deductions was Form 8396 (Mortgage Taxes-Real property) – (Copy enclosed)
    • Deductions: Mortgage Interest (copy enclosed) Larry had !st Mortgage with Bank of America.
    • Closed on my Mortgage 3/23/2010
    • Prepared 5405 Form it stated that if filing for tax period 2009 need to send copy of taxes and send an 1040x to amend so that I could receive my tax credit for the First time home buyer.
    • Now I noticed that that they are referencing everything on this $8000 request to my ex-husband based on our 2009 tax returns (his name is first)
    • The 5405 form clearly states that I purchased a home solely in my name.
    • I am asking that you please re evaluate your opinions concerning this matter based on the information I am providing you. Thank you
    The above is my story since then I have had 2 letters telling me that work load has put them behind. Well they..the (IRS) currently has 7 more days to give me an answer…I’m getting pretty frustrated at the freaking IRS…they should not do people like this!!!!!!!!!

  2. 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.

    – 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.


  3. I guess it’s not enough that the taxpayers are providing 3 hots and a cot to these miscreants, now we’re on the hook for a fake home tax credit too. Sweet! I just want to know when I get a freebie; where’s mine? My husband and I have worked hard for every cotton picken thing we own. We pay our bills (on time), pay our full tax burden (grudgingly), and we don’t screw other people in the process. When will there be something for us? For you guys?

    Well I hate to tell you, but the current policies ONLY give handouts to those NOT paying in…. If you actually just want others to help ease the burden on you and your family, WE ALL must make changes to our elected officials and their priorities…. It’s been to easy for them to be on the TAKE band wagon… So WHY would they want changes (NOT FORCED)… Your complaint is legitimate and MANY others feel the pain it causes to the hard working American citizen…. We’ve always been abused, and it’s all coming to a head…. The politicians in the state I live are SCARED… and they should be…. Their reign is OVER…..

    WE MUST FOCUS ON the TRUE CHANGE… Politicians with VALUES…. Representative who REPRESENT….. The burden is OURS….

  4. Let’s put the blame for the abuse where it really belongs. With the IRS. The law was passed by Congress and it actually did what it was intended to so – stimulate the purchase of homes. BUT the blatant abuse of the system is significant because of the lack of controls by the IRS. 67 people claiming credit on the same house? Giving out credits BEFORE they were authorized? Folks, the IRS did that, not congress and not Obama. You think people were crazy for trying? Maybe so but it worked for them didn’t it? And getting back money from an incarcerated person – fuh ged about it – ain’t happening. What do they earn – $2 a day for washing dishes in the kitchen?

    I love to take potshots at Obama too (I didn’t vote for him) but in this case it’s the IRS. Maybe we should demand that the head of the IRS “come to the hill” for Congressional hearings on its behavior just like other CEO’s and CFO’s and corporate president’s have to do when they screw up so badly.
    New Healthcare system in 2014 will be policed by the IRS. If 10% will be lost by fraud, 1,000,000,000,000 trillion * 10% = 100,000,000,000 billion in FRAUD. We are so screwed…

  5. I’m curious. How can you blame the president for the prisoners’ behavior? He didn’t write the legislation, Congress did. He doesn’t process the returns or write out the checks. Are you so naive as to believe that every bit of minutia in the government is run by the president first? Let’s blame the people responsible for the fraud – the prisoners, and probably bribed prison officials. If you think this is the only scam run from inside prison walls, you are mistaken. To listen to the posters here, the president should be processing housing credits, sifting tar balls out of the sand on the Gulf, fighting two wars, filling prescriptions and examining all food and drugs for purety. A president only learns of these types of problems after the spam hits the fan. Perhaps it’s getting just a little too easy to blame the president rather than getting to the root of the problem. Oh, if you need him, he’s strapping on swim fins so he can dive down to try to cap that gusher he caused.

  6. This is the same government that wants to take over Health Care?????? Trillions of dollars that will be handled by government employees. The same government employees that can handle nothing correctly. The same people that can hardly ever get fired from the job. The same group of people that have more over $100,000 jobs per year than any private sector jobs. What a crock. We need to get some of these people off of my payroll. The most cushy jobs in the world. You know how I know that? I used to be one. I could get my job done in 2 hours a day because the previous employee in my position was a moron. I had to stay there for 8 hours doing nothing for 6 hours.

  7. So if someone is married, to someone in prison, and the person on the outside gets a first time home buyer credit, that means, by default, especially if both names are on the house, it LOOKS LIKE someone in prison got the tax credit. Reading between the lines and knowing that so many people are in prison it CAN’T HELP but be reported at some point in time that THEY got a credit, even if it was their spouse that bought the house. Makes for a hostility provoking story that jerks the chains of the public so i guess that is why it reads like it does. So predictable that people fall for it. Sad but predictable. As usual.

  8. Government is a joke. This tax credit should have never happened. We are paying for people to buy homes. What kind of BS is that? Hey how about we pay for others to buy cars, ohhh we already did that! Lets see, I think we should pay for people to buy boats too. What the hell is going on!!!!!! WAKE UP! Tax payers shouldn’t be doling out money for private individuals to buy something that is not a necessity. They will provide credits for couches before they provide credits for boats – that way, people can sit and eat their government cheese, on their government couch, in their government home.

  9. Once again it proves the government cannot be in charge of any entitlements without screwing them up. They are not qualified to handle this type of incentive. They only know how to spend our tax money but cannot and do not care how much of our money goes to waste. Then they ask for more from us. We must not let the current administration take over any more private sector establishments or programs and we have to start taking away many more of the programs and make them state programs that can be tracked easier. Too many czars, too many special committees, to many new hires and way too many councils have been set up by the government and we the taxpayer are made to pay. I’m sick of the waste incompetence of the government.

  10. Great, just another example of a government giveaway program without adequate fraud safeguards in place: “The IRS paid out $9.1 million to 1,295 people who were in jail at the time they said they bought a home, and 241 of those prisoners were serving life sentences…”

    And what’s going to happen to the people they do catch? What kind of punishment are they going to get? A slap on the wrist?

    And what do you do to the prisoners, especially the lifers? Execute them now?

    You can always expect someone to take advantage of any government program if there aren’t serious enough penalties in place to act as a preventive deterrent.

    And I especially like this quote: “In one case, 67 separate taxpayers claimed the credit on the same home.” Tell me that wasn’t some organized intent to defraud the government. I thought ACORN had been disbanded already….

  11. Every time I read another article about this I want to just sit down and cry. We have no morals anymore, no ethics, and our gov’t is as corrupt as the next one. Our gov’t can’t account for one penny of our money anymore and more and more is being wasted. We have ramped Medicare fraud and now they want to take care of all our health care. This is very scary to say the least and we should be revolting. No more incumbents!!!!!! Term limits!!!!!!!!


Leave a Comment