It looks like the federal government probably should have taken a little more time to think through its first-time homebuyer tax credit program before putting it into operation, since it seems that the rush to make it available to eligible first-time buyers has left it a bit vulnerable to fraud.
On October 22, J. Russell George, Treasury Inspector General for Tax Administration– along with an Internal Revenue Service official–testified before a House Ways and Means subcommittee that some 100, of the 1.5 million claims for the $8,000 tax credit might be bogus. He said some applicants could possibly be illegal immigrants and that 580 people who claimed the credit were under the age of 18 (the youngest was 4 years old!)
George also said that more than 19,000 people filed 2008 tax returns or changed returns to claim the credit for homes they hadn’t bought yet. Those claims added up to $139 million, and the IRS hadn’t decided whether they would verify that those purchases had actually occurred.
He also said his office had found another $500 million in claims, by nearly 74,000 taxpayers, that had signs that pointed to prior home ownership.
George stressed that after a closer look, many of these questionable cases may end up being genuine, but the hearing called the program into question at a time when Congress is considering whether to extend it–or even expand it–before it runs out at the end of November.
Georgia Rep. John Lewis (D), chairman of the oversight subcommittee, said he had gotten the ball rolling on legislation that would beef up the IRS’ administration of the program. This would include giving it the ability to inspect prior tax returns to confirm eligibility, as well as requiring taxpayers to submit proof that they’ve actually bought a home. As of right now, applicants must submit a separate IRS form, but they do not have to provide proof of purchase.
George said the IRS has started to use computer software to reject claims from people who have yet to buy a new home. He also pointed out that the agency has installed filters to catch applicants who entered information on their tax returns that hints that they may have owned a home at some point in the last three years, such as deductions for home mortgage interest or property taxes.
Although Congress’ view of the program has been favorable overall, some members are starting to get concerned about how much it’s costing the taxpayers. Some people have also criticized the program as unnecessary, saying that the drop in home prices alone would have been enough to motivate first-time buyers. The National Association of Realtors disagrees with this claim, though, saying that according to its estimates, about 350,000 purchasers–one-fourth of those who have claimed the credit–would not have bought homes without it.