TIGTA Audits IRS’s Administration of First-Time Homebuyer Credit

The Internal Revenue Service (IRS) may have allowed thousands of taxpayers to claim millions of dollars in First-Time Homebuyer Credits (the Credit) to which they were not entitled, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA found that some taxpayers claimed the Credit for homes which they had not yet purchased, while others claimed the credit despite indications that they were not first-time homebuyers.

Congress created the Credit as part of the Housing and Economic Recovery Act of 2008 to allow taxpayers who purchased a home between April 8, 2008, and July 1, 2009, to claim a credit of up to ,500.
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The American Recovery and Reinvestment Act of 2009 (the Recovery Act) extended the Credit to homes purchased prior to December 1, 2009, and increased the maximum Credit to $8,000.

In November 2008, TIGTA recommended that the IRS use the information provided by taxpayers seeking the Credit to verify eligibility for the Credit. TIGTA also recommended that the IRS require taxpayers to provide documentation to verify a home purchase, such as a U.S. Department of Housing and Urban Development Settlement Statement (HUD-1) issued to homebuyers at closing. The IRS disagreed with both recommendations, stating that other strategies being employed would mitigate TIGTA’s concerns.
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As a result of the IRS’s inaction, TIGTA’s report found that 19,351 taxpayers claimed $139.4 million in credits for homes they had not yet purchased but would allegedly purchase in the future. In addition, 70,005 taxpayers claimed more than 9 million in credits, despite indications that they were not first-time homebuyers.

TIGTA also identified 582 taxpayers under 18 years of age who claimed almost $4 million in First-Time Homebuyer Credits. The youngest taxpayers receiving the Credit were 4 years old.

“Steps taken by the IRS prior to the 2009 filing season were not sufficient to prevent waste, fraud, error and abuse,” commented J. Russell George, the Treasury Inspector General for Tax Administration. “The IRS should immediately implement TIGTA’s recommendations in order to prevent further fraud and abuse of First-Time Homebuyer Credits.”

TIGTA also recommended that the IRS examine questionable claims for the Credit and seek reimbursement where appropriate. The IRS was unclear on their plans to seek reimbursement on questionable claims for the Credit and disagreed with requiring documentation to support eligibility.

[TaxMama note: See the documentation that is now required when a First Time Homebuyer Credit claim is audited .

To view the full report, including the scope, methodology and the IRS’s response and Inspector General George’s testimony to the House Ways and Means Committee, visit the Resource Box here.