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Official warns of abuse of homebuyer credit

Jim Abrams
AP Writer

Washington — Tens of thousands of people may have taken advantage of the first-time homebuyer tax credit to defraud the government, according to an Internal Revenue Service watchdog official, in testimony that could jeopardize efforts to extend the popular program.

Treasury Inspector General for Tax Administration J. Russell George told members of a House panel that more than 19,000 people filed 2008 tax returns or amended returns claiming the credit for homes they had not yet bought. Those claims amounted to $139 million and it was unclear whether the IRS planned to verify that those purchases took place, he said.

George said his staff had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

According to George’s office, the IRS did not require taxpayers to provide documentation to substantiate the purchase of a home. The taxpayers were told by tax agency officials that the IRS was unable to accept such documentation electronically.

George told members of a House Ways and Means oversight subcommittee that his staff also found 580 taxpayers under age 18 who claimed $4 million in first-time homebuyer credit. One was 4 years old.

George said that while the IRS has since taken steps to tighten oversight, “some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit.”

Rep. John Lewis, D-Ga., chairman of the subcommittee, said he was concerned that the quick IRS response to the new credit came at a cost. “There are possibly hundreds of millions of dollars that have been paid to taxpayers who are not entitled to the credit,” he said.

The top Republican on the panel, Rep. Charles Boustany, Jr., of Louisiana, said that while the issue of extending the credit was not the purpose of the hearing, “every time Congress creates a new refundable credit … the incentive for fraud is magnified.”

Linda Stiff, IRS’ deputy commissioner for services and enforcement, agreed that “any time that there is an opportunity to receive cash back it tends to attract people that might have an intent to defraud the government.” The agency “recognizes that there is potential for both fraud and errors” when a new tax credit is enacted. She said agency staff members “will vigorously pursue those who filed fraudulent claims.”

The homebuyer credit was a key element of the $787 billion stimulus package enacted last February. Under the measure, low- and middle-income first-time homebuyers purchasing a home between Jan. 1 and Nov. 30 of this year could claim a credit of up to $8,000 on their 2008 or 2009 income tax return.

The IRS has processed claims from more than 1.5 million individuals or families, according to the agency.

General Accountability Office officials, in a report to the subcommittee, said that represented about $10 billion in tax revenue.

With the program scheduled to expire in a month and the housing market’s recovery still shaky, there have been proposals in Congress to extend and expand it.

At one end, House Majority Leader Steny Hoyer, D-Md., said the program should be extended for a month while lawmakers take another look at how it is being run. On the other end, Sen. Johnny Isakson, R-Ga., with the backing of banking committee chairman Christopher Dodd, D-Conn., wants to extend it through next June 30, and expand it to include all homebuyers, at an estimated cost of $16.7 billion.

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