Audit: $636 Million in Bogus Homebuyer's Credit

The following findings were published by webCPA.com:

The First-Time Homebuyer Credit program that kept the housing industry afloat this year also led to hundreds of millions of dollars in fraudulent or erroneous claims.

The program allows a first-time homebuyer to claim a refundable tax credit of up to $8,000. The credit is supposed to expire on December 1, but the real estate and construction industry, and some members of Congress, are pushing to extend and expand the program beyond the cutoff date. However, a new report by the Treasury Department’s Inspector General for Tax Administration (TIGTA) uncovered a widespread amount of fraud or misapplication of the credit.

TIGTA’s report found that 19,351 taxpayers claimed $139.4 million in credits for homes they had not yet purchased, but would allegedly purchase in the future. In addition, 70,005 taxpayers claimed more than $479 million in credits, despite indications that they were not first-time homebuyers. TIGTA also identified 582 taxpayers under 18 years of age who claimed almost $4 million in credits. The youngest taxpayers receiving the credit were four years old.

“Contract law generally exempts children under the age of 18 from being bound by the terms of a contract,” said TIGTA Inspector General J. Russell George in testimony before the House Ways and Means Oversight Subcommittee on Thursday. “Therefore, it is unlikely that these taxpayers would have entered into an arm’s-length transaction for the purchase of a home.”

As of Aug. 22, 2009, over 1.4 million taxpayers have claimed the credit for homes purchased in 2008 and 2009, representing foregone tax revenue of about $10 billion, according to preliminary IRS data cited in a report by the Government Accountability Office. Fifty-nine percent of the taxpayers claiming the credit had an adjusted gross income of less than $50,000 and the credit was disproportionately claimed by taxpayers in the $25,000 to $100,000 AGI range.

If you have questions concerning your eligibility for the credit, it is best to speak with a qualified tax professional or an independent Certified Financial Planner. A fee only financial advisor is also best qualified to help you make good use of the tax credit.