Taxation & Estate Planning

Abuses of the First Time Homebuyer Tax Credit

By Darrin Mish

What was a much lauded move by the government to stimulate the economy has become a farce because of tax cheats. In 2008, the government gave a tax incentive to boost home sales which was significantly expanded this year. Under this incentive, those who buy a house for the first time between January and November this year are entitled to a tax refund of up to 10% of the purchase price of the property or $8,000 whichever was lower. Therefore, if you do not owe any back taxes, you are eligible to claim up to $8,000 from Uncle Sam. All you have to be to qualify is not own a house in the past 3 years. Furthermore, this tax credit is applied retroactively hence you can adjust your 2008 tax returns and claim your $8,000 immediately instead of waiting till next year.

What more, you do not have to furnish documentary evidence of buying a home to qualify for this tax credit. All you had to do was declare that you are buying a house. As you can imagine, takers were aplenty as the IRS reported more than 1.5 million claims within the first 9 months of this year. According to the National Association of Realtors, this is expected to boost home sale growth by 1.5% this year as compared to a drop of 6% without the tax credit.

But here?s where it all goes awry. The US Treasury Inspector General?s office issued a report last week that found widespread abuses of this credit. More than 19,300 applicants who made electronically filed tax returns claimed their tax credits without having bought a house. Almost 74,000 taxpayers who already owned a house within the last 3 years (which makes them ineligible to claim) made claims of more than $479 million. About 3,200 claims were filed using taxpayer identification numbers instead of Social Security numbers, giving rise to the possibility of non-American citizens making claims in this scheme. And to top it all, more than 580 ?taxpayers? younger than 18 years old claimed almost $4 million in homebuyer credits, the youngest of whom was 4 years old. Since the law prohibits minors from entering into contracts, it is not unreasonable to deduce that these claims are fraudulent.

In light of this report, the IRS has given Congress the assurance that it will ?vigorously pursue those who filed fraudulent claims for the credit?. According to Linda Stiff, the IRS Deputy Commissioner, the agency has identified more than 160 potential fraud cases that have led to dozens of criminal investigations and more than 100,000 tax returns for audit.

In a further development, Congressman John Lewis (D ? Georgia), the House Ways and Means Oversight Subcommittee chairman proposed changes in legislation that would require an applicant to be at least 18 years old and provide documentary proof that they have bought a house before being given the tax credit. It also empowers the IRS to review older returns to ensure that the taxpayer actually qualifies for the credit.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

Abuses of the First Time Homebuyer Tax Credit is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on December 26, 2009 (boomark / email).