First Time Homebuyer Credit riddled with fraud at taxpayers' expense
Before Congress votes to extend or expand the popular First Time Homebuyer Credit (FTHBC)… they might want to take a look at the report just out from the Treasury Inspector General for Tax Administration (TIGTA). The purpose of the report was to determine whether there were “controls in place that effectively identify erroneous claims for the credit.” The answer… a resounding “no.” In fact, this short-lived credit has already racked up bogus payouts in the neighborhood of $636 million.
- 582 credits were claimed by individuals under age 18, the youngest of whom was four years old.
- For 2008 alone, 19,351 returns were electronically filed for houses that were not yet purchased, even though the regulations stipulate that the purchase must be complete. These credits amount to nearly $140 million. It is not yet known how many paper returns were filed for purchase that were not completed.
- 73,799 credits had been claimed, as of July 25,2009, by people who had information on their 2008 tax returns that could indicate they do not qualify as first time home buyers- – such as real estate taxes, mortgage interest, mortgage insurance premiums, and energy credits -- in one or all of the last three years. Credits inappropriately paid out to ineligible buyers totaled roughly $504 million.
- Claims in excess of the maximum allowable Credit.
- Claims in excess of allowable amounts for those taxpayers with Adjusted Gross Income exceeding income limitations.
- Claims without a Form 5405 attached.
- Although there was information on the Form 5405 that could have been used to verify eligibility, such as the date of purchase and location of the house, this information was not keyed into IRS computers.
- The IRS does not require taxpayers to attach documentation to tax returns claiming the credit, such as a HUD-1 Form (from the federal Department of Housing and Urban Development) that would verify the date of purchase, the residence address, and the purchase price.
- The tax agency was given authority by Congress to pay the credits, but not to require documentation of an actual, qualifying home purchase.
- Requiring documentation would preclude people from filing electronically.
- The IRS doesn’t have “math error authority” to disallow a credit during processing, based on incorrect math in the application.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.