IRS needs more control over homebuyer tax credit program, audit finds

By AccountingWEB Staff

The IRS has improved how it processes first-time homebuyer tax credits, but erroneous or questionable claims are still a problem on amended returns, a new report contends.

Taxpayers inappropriately changed their home purchase date on amended returns to avoid repayment of their homebuyer credit, according to a report released today by the Treasury Inspector General for Tax Administration (TIGTA). Some taxpayers received multiple refunds, and many questionable claims were not sent to IRS examiners for further study, the report said.

Taxpayers have a number of options to claim the first-time homebuyer tax credit, including filing an amended tax return. The IRS received 1.4 million amended claims totaling $10 billion as of January 29, 2011. The program, which is now expired, was designed to spark home purchases by offering up to $8,000 in refundable tax credits. In all, taxpayers have claimed more than $30 billion under the program.

The audit reviewed 43 cases in which a taxpayer claimed the credit for 2008, then filed an amended return to claim the credit for 2009 or 2010. Auditors found what appeared to be invalid changes in 15 of those cases, or 35 percent. "Changing the year of purchase clearly benefited taxpayers as they would now not be liable for the repayment of the total amounts received for the homebuyer credits," the report said.

TIGTA also found that the IRS paid an estimated $37 million in interest on claims for the time period before the home was actually purchased. For example, the report said, a taxpayer that filed his or her 2008 return on time and then purchased a home in September 2009 can amend the 2008 return and will be paid interest on the amount of the homebuyer credit beginning April 15, 2009. Because the IRS considers April 15 as the date the homebuyer credit originated, the agency would pay interest five months before the actual purchase date or liability to the taxpayer occurred. It is unclear whether Congress intended for this interest to be paid, the report said, noting that the IRS should have sought clarification.

Finally, some claims for the Homebuyer Credit were delayed significantly, the audit said. 

Among other things, TIGTA recommended that the IRS implement procedures to identify taxpayers who change the year when their home was purchased, or receive more-than-entitled homebuyer credit and recover invalid claims.

IRS agreed with the recommendations, and in a statement, said, "Where there have been questionable claims, the IRS has moved aggressively, closing almost 450,000 examinations and saving taxpayers more than $1.4 billion. This includes examination of more than 225,000 amended returns where over $820 million was protected."

In fact, the audit report notes that the IRS took many steps to ensure amended tax returns claiming the homebuyer credit were accurately processed. The report also says, however, that the legislation was enacted, then revised and extended in four separate actions, making the program challenging to administer.

The Washington Times in May reported that more than 128 IRS employees cheated the government by fraudulently claiming a first-time homebuyer tax credit. The agency promised "strong action, including dismissal" when it finds erroneous claims.

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