Homebuyer Tax Credit Fraud Hits $27M

By Tanya Roth, Esq. on June 24, 2010 | Last updated on March 21, 2019

This week there is bad news and some more bad news in the housing market. The first bad news: new-home sales plunged last month by 33 percent to the lowest level on record, thanks to the ending of the first-time homebuyer tax credit. Which brings us to the second bit of bad news. In a report out June 23, the IRS says almost 10 percent of claims for the first time homebuyer tax credit were denied due to erroneous or fraudulent filings.

According to Bloomberg, a report from the Treasury Department's Inspector General said nearly $1.22 billion of the $12.6 billion in tax credits claimed through February were denied or frozen after audits. The IRS believes that overall, about 1.8 million taxpayers claimed the tax benefit since it became available to homebuyers in April of 2008.

Those that tried to fool the IRS by fraudulently claiming a tax break they were not entitled to, for the most part, were not particularly clever about it. Bloomberg reports for instance, that about 1,295 prison inmates claimed about $9.1 million of the credit. Did they think the Feds wouldn't know about their small incarceration problem? Further, about $18.8 million was claimed by individuals who bought homes before the law took effect. That might have been an actual mistake.

But how about this one: $134 million was claimed from situations where more than one filer said they bought the same house, according to the IRS report. This includes one very impressive instance where no fewer than 67 people claimed the credit for the same property.

For those of you wishing to claim the credit in an upright and honest manner, remember that to receive the credit, buyers must have signed contracts by April 30 and complete deals by the end of this month. Those seeking the credit totaled $18.7 billion at the end of April, Bruce Friedland, an IRS spokesman in Washington, told Bloomberg in a telephone interview.

The homebuyer credit did do some good. Sales rose to a high of 6.49 million in November, when the tax credit was originally scheduled to expire.

Related Resources:

IRS Audits Block 10% of First-Time Homebuyer Credits (Bloomberg BusinessWeek)
Glossary of Common Tax Terms (FindLaw)
First Time Home Buyer Tax Credit: The Basics (FindLaw's Law and Daily Life)
California Introduces New Homebuyer Tax Credit (FindLaw KnowledgeBase)
Real Estate Overview (provided by The Troglin Firm, P.C.)
Civil and Criminal Tax Penalties (provided by Tax Law Group, LLC)