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

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Last year, I began working with a tax accountant. We reviewed how I filed my income tax returns for 2007 and 2008 and determined that filing differently would have saved me about $15,000 overall. In November, I filed amended income tax returns (1040X) for 2007 and 2008.

I received a refund for my 2007 return within six weeks. That corresponded with my expectations, similar to those who amended their 2008 returns to receive the first-time home buyers’ tax credit. As many people have commented, it is now taking much longer to receive refunds from amended returns due to volume and certainly to people who filed incorrect or unclear documentation.

Since it has been able 12 weeks since I submitted my amended tax return, I decided to call the IRS last night to check my status. The experience of calling wasn’t as awful as I expected. Since the IRS’s “Where’s My Refund” website does not apply to amended returns, I called the customer service phone number — a clever number considering the tax form: 800-829-1040. I proceeded through the automated system and dialed 0 to speak with a customer service representative. My hold time, at 7:00 PM Eastern, was only about four minutes.

The representative who took the call was friendly and helpful. She verified my personal information for security purposes and put me on hold again for one minute to research the status of my 2008 refund. When she returned to the line, she informed me the IRS had received my amended 2008 income tax return but no further status was indicated. She assured me this simply means that it is being processed, and similar refunds are currently taking 12 to 18 weeks for processing. The representative encouraged me to call again in a few weeks.

I plan to ask my accountant whether it would be safer to file for an extension for my 2009 income tax return rather than file now and present the possibility of incurring a further delay. I don’t know whether the status of my amended 2008 return would affect the speed at which I would receive the 2009 return. I would rather get one out of the way first.

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