$1 Billion of Homebuyer Credits May Be Fraudulent

Last Updated Jun 30, 2010 6:04 PM EDT

The first-time homebuyer tax credit seems to be a bonanza for crooks and sloppy people. An IRS report on the homebuyer tax credit from earlier this month indicates that the taxmen are blocking many claims due to fraud or errors, reports John Gittelsohn of Bloomberg News.

The report, by the Treasury Inspector General of Tax Administration, contains the results of audits that ended up denying more than $1 billion worth of credits. The most egregious cases were:

  • Claims from prisoners who were incarcerated at the time of their supposed home purchases and did not purchase with a spouse. The credit applies to primary residences only, but some 715 of these prisoners who claimed the credit were, in fact, serving life sentences.
  • Multiple claims on the same address. In the worst example of this, 256 claims for the credit were filed -- on only five addresses. The Bloomberg story notes that one address was responsible for 67 claims. (In an example of the thoroughness of your tax dollars at work, yes, the government checked, and none of these addresses were condo complexes.)
  • Claims for credits on homes purchased before the program took effect. To be eligible for the credit, homes must have been bought after April 8, 2008. However, some claims filed were for purchases made earlier in 2008 -- and a dozen claims were filed for homes purchased in 2000!
What does all this mean for you? Well, if you've claimed the credit fraudulently or in error, the recommendations made as a result of the audit may cause a reversal of your claim. Even if you've claimed the credit honestly, look for more follow-up -- perhaps a note from the IRS asking you if this is indeed your first attempt at homeownership in three years, and for you to attest that you intend for it to be your principal residence.
  • Alison Rogers

    Since graduating from Harvard summa cum laude, Alison Rogers has been a reporter, an editor, a real-estate agent, a Wall Street desk jockey, a columnist, a failed flipper, and a landlady. A member of the National Association of Realtors, she currently sells and rents luxury co-ops in Manhattan for the Chelsea-based firm DG Neary. (If you've got $27,500 a month, the firm has an apartment for you!) Her book, Diary of a Real Estate Rookie, was called "a valuable guide for rookie buyers" by AOL/Walletpop, "beach-read fun" by the New York Observer, and "witty" by Newsweek.