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