Audit Shows Prison Inmates Received $9M in Homebuyer Tax Credits

A breakdown in fraud controls allowed prison inmates to apply for and receive $9.1 million in homebuyer tax credits from the federal government, according to an ""audit conducted by the Treasury inspector general"":http://www.treas.gov/tigta/auditreports/2010reports/201041069fr.pdf for tax administration.
[IMAGE] The homebuyer tax stimulus is largely credited with giving a much needed lift to home sales by creating a sense of urgency for potential buyers to move off the sidelines. It gave $8,000 to first-time buyers and $6,500 to current homeowners looking to purchase a new primary residence.

The audit found that more than 1,200 prison inmates, including 241 serving life sentences, cashed in on the home purchase tax incentive. Those behind bars for life were granted $1.7 million.

A penitentiary return address may have been the most obvious red flag of an erroneous claim, but the Treasury inspector general found a number of other areas where fraud proliferated.

The audit found that the Internal Revenue Service (IRS) allowed multiple claims for the same home. In addition, claims totaling an estimated $17.6 million were permitted for homes purchased before the tax credit program began.

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The inspector also uncovered ""questionable"" claims by IRS employees themselves.

The report notes that ""The IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate credits from being issued. Primary among these controls was the implementation of filters to identify questionable claims for the credit before they are processed. However, additional controls are necessary to address erroneous claims.""

Richard Byrd, commissioner of the IRS' wage and investment division, responded to the audit report in a letter to the inspector general. He emphasized that between August 2008 and November 2009, Congress passed three different version of the homebuyer tax credit, each of which required the IRS to develop new forms and guidance, re-program systems, and develop compliance filters.

""The IRS is running a well-rounded compliance program that has helped protect the interest of the nation's taxpayers,"" Byrd said.

He pointed out that his organization has identified 98 potential criminal schemes, opened 155 criminal investigations, and recommended seven prosecutions.

Byrd also says 285,504 claims were denied in upfront processing because they lacked the proper documentation. In addition, 112,852 refunds totaling $785 million have been frozen pending an investigation, and 114,418 post-refund audits have been conducted by the IRS, resulting in a denial of $438 million in claims.

Byrd says the IRS has worked diligently to ensure that the millions of taxpayers who are eligible for the federal tax credit receive it. In his letter, he noted that through February 2010, over 1.8 million taxpayers received more than $12.6 billion in homebuyer tax credits.