Fraudulent Tax-Credit Claims Hit $134 Million

RISMEDIA -- A government audit has found that thousands of taxpayers have fraudulently claimed the first-time home buyers' credit, and the Internal Revenue Service apparently missed them all.

The fraudulent claims — some from prison inmates serving life sentences — totaled about $134 million, according to the Treasury Inspector General for Tax Administration.

Some of the "questionable claims" for refunds were made by 87 IRS employees nationwide, according to Michael R. Phillips, the deputy inspector general for audit.

There were three sets of tax credits. The first, approved in July 2008, was an interest-free loan that offered $7,500 to qualified first-time buyers that would be then repaid to the Treasury in $500 increments over 15 years.  The second, a maximum of $8,000 for first-timers, didn't need to be repaid, was approved in February 2009 and expired Nov. 30, 2009.

On Nov. 5, the tax credit was extended, and a maximum $6,500 added for qualified buyers who had not purchased a primary residence in five years or more.

All told, the "working estimate" of new and existing sales qualifying for all the credits is 4.4 million, National Association of Realtors spokesman Walt Molony said.

Fraudulent claims filed by 1,295 prison inmates added up to about $9.1 million on 2008 returns. Florida prisons generated the highest number of claims — 61 percent of prisoners serving life sentences who received the credit were incarcerated there.

Among filers loose on the streets, 256 used the same five addresses for their claims. In fact, 18,832 filers used just 7,695 addresses to claim a total of $134 million in refunds.

Of the 18,832 filings, 5,331 were filed by 1,941 paid preparers, the audit found.  About 2,500 taxpayers erroneously received a total $17.6 million in credits for houses they bought before the tax credit took effect, the audit found.