Enjoy the First Time Homebuyer Credit From the Comfort of Your Own….Jail Cell?!

Can’t believe what you just read?  Yeah, me neither, but it’s true. 

An audit of refunds to taxpayers claiming the tax credit concludes that millions of dollars have been paid out to prison inmates and homes purchased before the credit took effect.

Apparently quite a few scams and mistakes were made. 

Prisons report the status of inmates to the IRS on a voluntary basis, and “without congressonal action to require state and federal prisons to report the status of inmates to the IRS, there will be gaps in the data and compliance problems will persist.”  Commissioner of the IRS Wage and Investment Richard Byrd said.

Nearly 1,300 prison inmates wrongly recieved more than $9 Million in tax credit money.  241 of those were serving life sentences.   

In all, $26.7 Million were erroneous.  Some were taxpayers who appear to have purchased their homes that were also used by other taxpayers to claim the tax credit which first took effect in April 2008.  “Tens of millions” of dollars were issued to 10,282 taxpayers who claim to have purchased homes that were also used by other taxpayers to claim the credit.  In one case, as many as 67 taxpayers listed the same home to claim the credit.

34 IRS employees claimed the credit despite indictations that they owned a home within the past three years. 

What is going to happen? 

Obviously, the tax credit was great for many, aside from the ones that received it unfairly.  It was a win-win for buyers and sellers alike.  It helped the real estate industry from completely dropping off of a cliff, something which could have hurt even more sellers.  The buyers benefitted and took advantage of a program which is the first of it’s kind.

The solution: there will be a “Recapture and Repayment” strategy that will send third-party data to identify potential fraud triggers, including the date of a home’s purchase. 

I have not yet found out if “Recapture” will recapture those that benefitted from the scam, I imagine that that would be difficult, however the IRS has identified more than 200,000 potential criminal schemes.