House Considers Antifraud Measures for Home-Buying Credit

Posted by: Zach Lungo

Article by: Martin Vaughn

First-time home buyers seeking to claim an $8,000 tax credit may face steeper documentation requirements if Congress decides to provide more time to claim the expiring credit.
Linda Stiff, Deputy Commissioner of the Internal Revenue Service, told a House panel Thursday that the IRS supports requiring those trying to claim the credit to submit a settlement statement from the U.S. Department of Housing and Urban Development, the so-called HUD-1 form, together with their tax return.
Top congressional Democrats support a temporary extension of the credit -- which expires Nov. 30 -- and are now wrestling with how long to extend it and with what safeguards against fraud should be included.
Realtors, mortgage brokers and home builders are lobbying for the credit to be extended, arguing that the real estate sector hasn't yet recovered.
Oversight Subcommittee Chairman John Lewis (D., Ga.) introduced legislation Thursday aimed at blocking would-be fraudsters seeking to cash in on the first-time home-buyer credit.
Independent auditors testifying before the House Ways and Means Oversight Subcommittee Thursday said IRS may have paid tens of thousands of fraudulent and erroneous claims since the start of this year.
For instance, more than 19,000 tax returns were filed claiming the credit for homes that hadn't yet been purchased. The claims, which should have been ineligible but were paid because IRS didn't have proper controls in place, totaled about $139 million, said J. Russell George, the Treasury Inspector General for Tax Administration.
IRS has since fixed the problem for tax future returns.
In addition, 582 taxpayers under the age of 18 claimed almost $4 million in first-time home-buyer credits, Mr. George said.
Mr. George said that while there are some instances where a minor might legitimately purchase a home, most of the cases identified by audit appeared to be claims by parents who had purchased a home but were ineligible for the credit because their incomes were too high.
The Lewis bill adds a minimum age of 18 to claim the credit, requires inclusion of the HUD-1 form, and gives IRS authority to look at prior-year returns to determine whether a taxpayer is eligible for the credit.
The credit is available only to first-time home buyers who purchased a primary residence between April 9, 2008, and Nov. 30, 2009, whose income is less than $95,000 for single taxpayers or $170,000 for married couples.
More than 1.4 million households claimed nearly $10 billion in refunds through returns filed in 2009. Hundreds of thousands more are expected to claim the credit when they file returns in 2010.
The IRS has opened criminal investigations in 115 cases of possible fraudulent schemes, involving 8,000 returns, said the IRS's Ms. Stiff. It has selected a total of 106,000 returns for audit based on questions regarding first-time home-buyer tax-credit claims.
"We cannot let fraudulent activity undermine a program that has benefited so many," said Ms. Stiff.
House Democrats would like to have Republican support for an extension of the home-buyer credit. But Rep. Charles Boustany (R., La.) said during Thursday's hearing that GOP support will be conditioned on the extension not adding to the deficit. He said unspent stimulus funds could be redirected to pay for the cost of an extension.

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