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| Internal Revenue Service |
The refunds were paid out because the IRS did not have appropriate controls in place before processing hHomebuyer Credit claims, said J. Russell George, treasury inspector general for tax administration, in his report.
The majority of the refunds — $326 million — were given to 48,000 taxpayers claiming to be first-time home buyers who had actually owned a home sometime in the past three years (one of the requirements of the credit).
Credits also were awarded to prisoners incarcerated at the time they claimed to have purchased a home, $7.7 million; multiple people claiming to have purchased the same home, $11.4 million; taxpayers who bought a home before April 9, 2008 (the starting date of the credit), $17.6 million; and people under the age of 18 who likely couldn’t legally purchase a home.
“The IRS has taken positive steps to strengthen controls and help prevent the issuance of inappropriate Homebuyer Credits. 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,” George said. “The IRS needs to take a much more timely and proactive approach to prevent fraudulent claims for refundable credits.”
Part of the controls that should have been in place were: filters to identify questionable claims before processing and a requirement for documentation to substantiate the purchase of a home, according to the report.
In response, the IRS claimed it didn’t have math error authority to correct fraudulent returns. The Worker, Homeownership, and Business Assistance Act of 2009, which gave the IRS the authority to deny home buyer credits if proper documentation was not provided by the taxpayer, wasn’t enacted until Nov. 6, 2009 when a number of erroneous credits already had been issued.
The first time home buyer credit gave eligible taxpayers the opportunity to claim up to an $8,000 refundable credit on their tax return. Eligible taxpayers included first-time home buyers who purchased a home in 2008, 2009 and 2010.
The credit was part of the American Recovery and Reinvestment Act of 2009. In November 2009, the government expanded the credit to include longtime homeowners purchasing new homes.
