First-Time Fakes: Frauds Hit Homebuyer Tax Break
Thousands of people have gotten first-time homebuyer tax credits they don't deserve — either because they haven't yet bought a home or because they already own one. The IRS's internal watchdog says the agency needs to do a better job of ferreting out fraud before cutting checks, and a congressional committee is now getting involved.
Some of these suspicious claims come from people who are writing off interest payments on another house. That's a pretty strong sign that they already own a home.
Russell George, the inspector general who watches over the IRS, is bewildered by the way the agency set up the program.
"This is one of the largest refundable credits in the history of the Internal Revenue Service," George says. "As they are well aware, there are people who do not want to pay taxes. If you give them any opportunity to avoid paying it, certain people will."
In a recent audit, George's office highlighted nearly $500 million in homebuyer tax credits claimed by people who don't appear to qualify.
At the House Ways and Means Committee hearing Thursday, George is expected to release another, more damning report. His biggest complaint — and something he's been talking about for months — is that the IRS doesn't require people applying for the credit to prove they've purchased a house.
George says, "If the IRS were to require documentation of the purchase of a home, that would serve as a major disincentive to people who would otherwise fraudulently claim the credit."
But the IRS has resisted that move.
"It wouldn't necessarily give us the ability to automatically disallow the claim," says Frank Keith, a spokesman for the IRS.
He says the IRS doesn't have the authority to reject a claim for the tax credit without doing a full audit first. Keith says his agency has flagged more than 100,000 tax returns for a second look.
"I think we'll find some where the taxpayer perhaps has made an honest mistake," Keith says. "And I think we'll find those cases in which the taxpayer has intentionally filed a claim for a credit knowing full well that they weren't eligible."
On Wednesday, a tax preparer in Florida was sentenced to 30 months behind bars for filing false tax returns. He claimed the homebuyer credit for 15 of his clients, and told some of them they could qualify even if they were merely thinking about buying a house.
"It's being touted as free money," says Bill Lazor, a certified public accountant from Kingston, Pa. "If it's so easy to get, that makes the bad guys devise schemes to help people get the credit who shouldn't have it."
The popular tax credit is nearing its expiration date, and some are pushing Congress to extend and even expand the program. The House committee hearing will examine what to do about the fraud.
"I am very disturbed by the inspector general indicating that there might have been more than 70,000 claims by people who were not purchasing their first home," says Rep. Earl Pomeroy (D-ND). "If somehow they are being routinely allowed the credit, we've got a major problem here. We've got to stop it."
The National Association of Realtors loves the credit and doesn't like the talk of fraud.
"That kind of thing is to the detriment of a very workable tax credit plan to help homebuyers get into the market," says the association's Lucien Salvant. "It's starting to stabilize prices in the housing market, and that's something everybody wants."
If the tax credit is extended, new measures likely will be included to make sure the only people who get a tax credit are the ones who deserve it.
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RENEE MONTAGNE, host:
This is MORNING EDITION from NPR News. I'm Renee Montagne.
STEVE INSKEEP, host:
And I'm Steve Inskeep. That tax credit for first-time home buyers is hugely popular. Too popular, it turns out. For those who qualify, it's like getting $8,000 cash back from the government. The IRS handed out nearly $10 billion in credits through August. But the agency's internal watchdog says thousands of people who benefited may not actually be first time home buyers. A congressional committee is looking into the matter today. NPR's Tamara Keith has more.
TAMARA KEITH: Some of these suspicious claims come from people who are writing off interest payments on another house. That's a pretty strong sign they already own a house. Russell George is the inspector general that watches over the IRS. He says it's bewildering that the IRS set up the program the way it did.
Mr. RUSSELL GEORGE (Department of Treasury): This is one of the largest refundable credits in the history of the Internal Revenue Service. As they are well aware, there are people who do not want to pay taxes, that if you give them any opportunity to avoid paying it, certain people will.
KEITH: In a recent audit, George's office highlighted nearly half a billion dollars in home buyer tax credits claimed by people who don't appear to qualify. At today's House Weighs and Means Committee hearing he's expected to release another, more damning report. His biggest complaint and something he's been talking about for months is that the IRS doesn't require people applying for the credit to prove that they've actually purchased a house.
Mr. GEORGE: If the IRS were to require documentation of the purchase of a home, that would serve as a major disincentive to people who would otherwise fraudulently claim the credit.
KEITH: But the IRS has resisted this. Frank Keith is a spokesman for the agency.
Mr. FRANK KEITH (Internal Revenue Service): It would not necessarily give us the ability to just automatically disallow the claim.
KEITH: Because, he says, the IRS doesn't have the authority to reject a claim for the tax credit without doing a full audit first. Keith says his agency has flagged more than 100,000 tax returns for a second look. He says many of the claims that are getting audited will turn out to be legitimate, but not all of them.
Mr. KEITH: I think we'll find some where the taxpayer perhaps has made an honest mistake. And I think we'll find those cases in which the taxpayer intentionally filed a return claiming a credit knowing full well that they weren't eligible.
KEITH: Just yesterday, a tax preparer in Florida was sentenced to 30 months behind bars for filing false tax returns. He claimed the home buyer credit for 15 of his clients and told some of them they could qualify even if they were merely thinking about buying a house.
Bill Lazor says he's not surprised that things like this are happening. He's a certified public accountant from Kingston, Pennsylvania.
Mr. BILL LAZOR (Accountant): It's being touted as free money. If it's so easy to get, that makes the bad guys devise schemes to help people get the credit who shouldn't have it.
KEITH: This comes as the popular tax credit nears its expiration date. And some are pushing Congress to extend and even expand the program. Democratic Congressman Earl Pomeroy says today's hearing will look at what to do about the fraud.
Representative EARL POMEROY (Democrat, North Dakota): I'm very disturbed by the inspector general indicating that there might've been more than 70,000 claims by people that aren't buying their first home. If somehow they are routinely being allowed the credit, we've got a major problem. We need to stop it.
KEITH: Lucien Salvant is with the National Association of Realtors, which loves the tax credit and doesn't like the talk of fraud.
Mr. LUCIEN SALVANT (National Association of Realtors): That kind of thing is to the detriment of a very workable tax credit plan to help home buyers get into the market. It's starting to stabilize prices in the housing market and that's something everybody wants to do.
KEITH: If the tax credit is extended, you can bet there will be some new measures built in to make sure the only people who get a tax credit are the ones who deserve it.
Tamara Keith, NPR News, Washington. Transcript provided by NPR, Copyright National Public Radio.
