Homebuyer tax credit audit shows fraud in the millions of dollars

Tax credit system defrauded

According to a report by the Treasury Department Inspector General for Tax Administration and internal Revenue Service, massive discrepancies have been identified. Although the homebuyer tax credit helped to stimulate the real estate sector, the system is apparently insanely simple to defraud. Millions were improperly paid out to people who applied early, and millions of checks were cut to prisoners, while in some cases, multiple taxpayers claimed the credit ont he same home.

Here are just some of the other issues found in the report:

1. 2,555 taxpayers were given $17.6 million for homes purchased before the dates legally allowed.
2. For one address, 67 taxpayers claimed the credit on the same home.
3. 241 prisoners claimed the credit while serving life sentences, none of which were filing joint tax returns.
4. Over 10,000 people were granted the tax credit on homes used by other taxpayers to claim the same credit.
5. 34 IRS employees who already owned homes filed for and were given the homebuyer tax credit (plus the 53 already under investigation from an internal audit in 2009).
6. Over $9.1 million was paid to 1,295 prisoners who were incarcerated when they said they purchased their homes. While some instances this is still possible, the audit reveals that in most cases it is illegitimate.

The IRS responds:

“In swiftly making the First Time Homebuyer Credit immediately available to more than 2.6 million homebuyers, a very small number of payments were made to prisoners incorrectly, which the IRS is now taking all steps to recapture and to prevent going forward,” the IRS said. “The IRS will follow up on every instance of an improper prisoner payment and take swift and appropriate enforcement actions.” It has also promised to go after and recoup any other losses from fraudulent claims on the effective, if easy-to-game, program.

IRS spokesman Anthony Burke claims that the agency had “successfully blocked or denied nearly 400,000 questionable homebuyer claims and opened more than 150 criminal investigations. These aggressive efforts have saved taxpayers more than $1 billion.”

Assistant Treasury Secretary Michael Mundaca said that the homebuyer tax credit led to $2.5 million worth of new home purchased to be completed and points to the credit as a stabilization factor for the housing market.

“These fraudulent claims, which are being pursued to the fullest extent of the law, represent less than half a percent of the credits paid out under this program,” Burke said, in an e-mail to CNNMoney.com. “As with all new and expanded programs, we are constantly working to improve implementation, and the IRS has already begun to take additional steps to prevent fraud in this program.”

Our question

How is any of this even possible? We know managing a process of this size is collosal, but is our government keeping records via stone tablet and chisel? The media has swarmed around the fact that prisoners were given checks fraudulently, but it seems that they took advantage of a dramatically flawed system, and the finger pointing should go directly toward the source. What do YOU think?

CC Licensed image courtesy of assbach via Flickr.com.