First-Time Homebuyer Program Rife With Fraud, Four-Year-Olds File For Credit

Government investigators revealed today that fraud is rampant in the First-Time Homebuyer Tax Credit program. Over 100,000 taxpayers have tried to cheat the system, the IRS says. Some of filers for the credit were just four years old.

The program allows people who haven’t bought a home in the past three years to claim up to an $8,000 tax credit, based on the home purchase price and their income level. It is credited with helping lift the housing market, and Realtors and other real estate industry groups are lobbying for its expansion and extension.

But government watchdogs say unscrupulous tax filers are using it to rip off the IRS to the tune of hundreds of millions of dollars. Linda Stiff, a deputy commissioner at the IRS, says the agency has uncovered over 160 schemes related to the credit and is investigating over 100,000 possibly fraudulent filers.

J. Russell George, a Treasury Dept. inspector general, told the House Ways and Means Committee that 19,300 filers had claimed a deduction on a home they hadn’t even purchased, claims worth $139 million. Some 74,000 filers claimed a credit but aren’t entitled to one because they owned a home within the past three years.

Another 580 people filing for the credit were under the age of 18. Normally, one must be over that age to purchase a home. reported that the Treasury’s George told the committee that more than one of the filers was just four years old.

There are other concerns with the program. Some 3,200 filers used an Individual Taxpayer I.D., not a Social Security number. The taxpayer IDs are usually used by people whose immigration status does not allow them to work in the U.S. Non-resident aliens are not allowed to claim the tax credit.

Another 45,800 filers appeared to have not claimed the full amount they are due. In many cases they claimed $7,500 which was the credit last year. This year the credit rose to $8,000.

The IRS’ Stiff testified that the agency in May began more aggressively screening returns to catch people who hadn’t actually bought a home, had previously owned one or who didn’t earn enough to justify a tax credit.

The General Accounting Office reports that over 1.4 million people have filed for the credits in 2008 and 2009, costing the government $10 billion in lost revenue. The total amount of the program is limited to $13.6 billion.

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