In 2008, 1,295 prisoners – including 241 serving life sentences – bilked the federal government out of $9.1 million in fraudulent home buyer credits, according to a June 23, 2010 report by the Inspector General (IG) of the U.S. Treasury Department.
The home buyer credit program was designed to revive the housing market. For the 2008 tax year, the program provided a federal tax credit of up to $8,000 for first-time home buyers. The credit was later extended until May 1, 2010.
The IG’s report found that 1,295 prisoners who filed claims were not eligible for the home buyer credits they received because they were incarcerated at the time they claimed to have purchased their home and did not file joint returns. As such, their claims could not have been the result of purchases made with or by their spouses.
“This is very troubling,” said J. Russell George, the Treasury IG for Tax Administration.
“Congress created and modified the home buyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrong doers.”
The IRS is moving to block fraudulent claims and recover the credits improperly paid to prisoners, according to IRS spokesman Frank Keith. Anyone who fraudulently claims the home buyer credit faces stiff civil penalties and criminal prosecution. Still, Keith conceded that it is difficult to identify tax returns from prisoners, who often list the address of a family member or a post office box.
Not all tax returns filed by prisoners are fraudulent, of course. Prisoners often have legitimate reasons to file tax returns, such as being owed a refund from income earned before they were incarcerated, Keith admitted. Further, it is possible for prisoners to purchase homes while incarcerated, with or on behalf of their families. The IRS is working with state and local governments to obtain information about incarcerated taxpayers, according to Keith.
Fraudulent home buyer credit claims were not limited to prisoners. According to the IG report, 2,555 taxpayers received $17.6 million in credits for homes purchased before the starting date of the program, while 10,282 taxpayers received credits for homes that were used by other people to claim the credit. One property was used by 67 different filers for the home buyer tax credit, and fraudulent claims, including those filed by prisoners, totaled over $28 million. The improper claimants included at least 34 IRS employees.
Regardless, Assistant Treasury Secretary Michael Mundaca noted that the fraudulent claims identified in the IG report represented less than one-half of one percent of all credits paid out under the program. “As with all new and expanded programs, we are constantly working to improve implementation,” Mundaca said. “The IRS has already begun to take additional steps to prevent fraud in this program.”
Sources: USA Today, CNN
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