TAX NEWS - June 2010

Fraud in the homebuyer tax credit? Shocking!

The mortgage disaster was the fraudfest of all fraudfests. "Liar loans," in which borrowers lied about their income and assets, became common. Mortgage originators played along. So why would the mortgage-disaster bailout be any different? A Treasury Department inspector general reports that 4,608 people have claimed the homebuyer tax credit even though their home is a government prison. Some of them could have been filing jointly with spouses eligible for the credit, but more than 700 not only didn't file jointly but were serving life sentences!

Of those returns from single-filing lifers, 174 were filed by paid, professional tax preparers. So again the middlemen are aiding and abetting.

Some other choice tidbits from the IG's report, which you can read in whole here.

-- Florida prisoners seem to have been especially diligent about defrauding the government. More than half the inmates who got the credit and are serving life sentences were in Florida.

-- Many of the fraudulent inmate returns slipped past screens set up by the IRS that were supposed to catch them. IRS employees also failed to follow up on other signs of fraud in numerous returns, the IG said.

-- More than 80 IRS employees claimed the credit even though they don't seem to have bought a house in the required time period.

-- Either there's an unreported overcrowding problem in U.S. housing, or lots of people fraudulently claimed the same addresses for their "new homes." There were five addresses claimed by 256 people.

-- Some people claimed the homebuyer tax credit for houses bought as long ago as 2000 and 2001.

-- The IRS agrees that the money given to prisoners should be recovered! Inspector general: "The Director, Reporting Compliance, Wage and Investment Division, should ensure that steps are taken to recover fraudulent Homebuyer Credits refunded to prisoners." The IRS: "IRS management agreed with this recommendation."