As featured in The Wall Street Journal, Money Magazine, and more!

Home Buyer Tax Credit Fraud

This article was written by in Taxes. 20 comments.

The problem with widely publicized tax credits like the home buyer tax credit is that people who don’t qualify — and know they don’t qualify — will apply for the credit. Many of these taxpayers, perhaps assisted by their tax preparers with or without their knowledge, will successfully convince the IRS to provide the tax credit, usually with fraudulent documentation.

An audit of the U.S. Treasury Department discovered that 1,300 state and federal inmates received an undeserved home buyer tax credit. It is true that you can buy houses from prison; in fact, many prisoners claimed and received the home buyer tax credit legitimately.

In total, The Treasury Department estimates that they are investigating 400,000 questionable claims. As you can imagine, this is making it difficult for legitimate home purchasers to claim the tax credit. When it was first offered the process of receiving the credit took about six weeks, but while the IRS was backlogged, it took up to six months judging from readers’ comments.

The Treasury Department, as a result of the 1,300 cases out of 400,000, wants federal, state, and local prisons to supply taxpayer information for all prisoners. Should tax returns filed by prisoners receive more scrutiny than the typical non-incarcerated taxpayer?

Prisoners, scammers profit on home-buyer tax credit, Andrea Coombes, Marketwatch, June 23, 2010

Published or updated June 29, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 9 comments… read them below or add one }

avatar Apex

If the government provides money for anything there will be a significant amount of fraud or waste.

Medicare, SS, Welfare.
Military spending, road spending, bridge spending.
Tax credits, bailouts, stimulus packages.
Disaster payments, FEMA, catastrophic recovery programs.

Can we stop pretending that an entity as large and as personally uninvested as the government has any ability to prevent or even meaningfully reduce this kind of thing?

The waste fraud and abuse reduction has been offered by politicians of all strips for decades as the easy solution to finding extra money. Yet the holy grail of savings remains allusive. Can we please stop believing these lies that the govt can spend any funds without tons of this stuff happening?

Reply to this comment

avatar Harm

“Should tax returns filed by prisoners receive more scrutiny than the typical non-incarcerated taxpayer?”
Slow day blogging?
But yeah, maybe the IRS isn’t smart enough to figger that one out on their own!

Reply to this comment

avatar Luke Landes

Well right now the IRS doesn’t necessarily know who is in prison and who is not, and that isn’t something they can “figger” out on their own. Additionally, if a prisoner is incarcerated for some crime unrelated to tax evasion, what is the justification for the additional scrutiny? I think these are valid discussion issues and not worth a “duh” response.

Reply to this comment

avatar Jenna

Maybe just those who are imprisoned for tax evasion… Or the CPAs who help inmates do their taxes. Interesting statistics thanks for sharing.

Reply to this comment

avatar Darwin's Money

While frustrating, it’s no surprise. The whole tax credit idea was a sham to begin with. Taxpayers (including millions of renters) had to shell out billions to subsidize housing so people who were going to buy a house anyway now get one for $6500-$8000 less. As soon as the subsidy expired, home prices dropped accordingly. And now they’re trying to resurrect this screed again. What a joke.

But to your article’s point, big government loves this stuff. First, they usurp funds from working Americans, hand it to new prospective voters who benefit, then they need thousands of new government bureaucrats to go back and audit what they screwed up to begin with. I’m sure they’ll catch ‘em all. Right.

The bottom line is let the markets clear, let housing tank, I bought my house to live in it-not for a piggybank. Let the prisoners be prisoners, not beneficiaries of government incompetence.

Reply to this comment

avatar jim

I think that incarceration in prison should be a red flag for audits. That seems like simple common sense to me. Convicted criminals are more likely to commit crimes.

I agree with Apex’s point as well. Anytime the government or any other entity spends billions of dollars then there is a higher risk of people trying to defraud the system and profit off of it. But I don’t think its impossible for the government to crack down and limit fraud and waste. We could easily reduce tax fraud by increasing the amount of IRS audits but the average tax payer doesn’t want that to happen. Its a difficult balance to find the proper amount of enforcement to limit fraud but not excessively inconvenience the innocent people.

Reply to this comment

avatar Jeff Ragan

It’s not good to know that they cheated the government for this tax credit. I just hope the government won’t tolerate this and investigate further about this case.

Reply to this comment

avatar wilder boar

The IRS is still behaving fraudulently processing my legitimate claim for a first time home buyer.Their lastest letter(many others have received the same excuse letter from the IRS, in the IRS’s effort to stall, put off, dismiss rebates;particularly to low income first time homebuyers), , arrving today said that I previously owned a home.I had to think back to prior late 1988 when I was married(now single) and way back then when my name was on a loan buying a home(NOT vacant property, but improved with a HOUSE on it). I have not owned a home, since, until I bought one in late 2009 in time for the rebate advertised stimulus rebate from the IRS.
Have served as POA for another person in the past who DID own a home, but was never a part of any purchase nor loan ownership nor liability for their property.All this is intentionally malicious on the part of the IRS, as the government does not have the money to pay all the legitimate, legal rebates. The IRS can smell another personal suite coming their way, paying me interest and the lawyer I choose legal fees.
Me?I’ll now take it to my Reps and Senators, then engage the media(I am disabled+ have a broken spine AND my car engine went out(need new one, need IRS rebate for that), put their fraudulent behavior on a billboard.
One of the very best sites(not goody-goody two shoes) for the masses of people not receiving their first time homeowners rebates in a timely manner was taxforum.org until it was suspended recently. Figure the Fed Gov and IRS had allot to do with that. IRS sources are of absolutely no help.

Reply to this comment

avatar Timesinourlives

Me too!!! I’ve been waiting 10 months!! I just received a letter stating I had owned a home from 2005 to 2009 at which time I sold it! I rented that house for 2 months at the end of 2005! The letter also states that I had utilities all of that time and received 1098 Interest statements for all the payments I DIDN’T pay!! The home had never been in my name…I have all the previous owner’s names and the foreclosure notice from the bank from 2008 that was filed against the REAL owner! I was given this information by the Assessors Office! I took the information to Roy Blunts Office today…he’s the congressman for my district here in Missouri. I’m not holding my breath…All the big bailouts for the big companies who over spent sure didn’t deal with this kind of harassment! They all went on vacation!!!!!!

Reply to this comment

Leave a Comment

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.