Hundreds in prison get home credits

Treasury finds scofflaws cashing in on tax break

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Living in prison didn’t stop nearly 1,300 inmates from cashing in on a popular tax break for first-time home buyers, a government investigator reported Wednesday. Their take: more than $9 million.

In all, more than 14,100 tax filers improperly received at least $26.7 million in tax credits meant to boost the nation’s slumping housing markets, said the report by J. Russell George, the Treasury Department’s inspector general for tax administration.

A common scam had multiple taxpayers using the sale of a single home, with each claiming the credit. One home was used by 67 tax filers, the report said. In other cases, taxpayers got the money for sales that happened before the tax break started.

“This is very troubling,” Mr. George said. “Congress created and modified the home-buyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers.”

The Internal Revenue Service says it is taking steps to get the money back. The agency noted that more than 2.6 million taxpayers claimed the tax credit through April - claiming $18.7 billion in credits - with only a tiny fraction going to prison inmates or other scofflaws.

“The IRS will follow up on every instance of an improper prisoner payment and take swift and appropriate enforcement actions,” the IRS said in a statement.

The report blemishes an otherwise popular tax break that was sweetened once by President Obama’s economic recovery package and again when Congress extended it into the spring. The National Association of Realtors says the tax credit has generated 1 million new home sales that wouldn’t have happened otherwise.

“Last year, we learned that children and persons who did not purchase homes were fraudulently claiming the first-time home-buyer credit,” said Rep. John Lewis, Georgia Democrat and chairman of the House Ways and Means oversight subcommittee. “Although I am pleased that the fraud identified earlier does not continue, I am concerned about prisoners claiming the credit.”

Congress started the first-time home-buyer tax credit in 2008, providing couples up to $7,500 that had to be repaid, free of interest, over 15 years. The credit was essentially an interest-free loan.

Last year, Mr. Obama and Congress upgraded the credit significantly, increasing the top amount to $8,000 and ending the requirement that it be repaid.

The inspector general’s report targets taxpayers who claimed the first-time home-buyers’ tax credit under these two programs. Since then, in November, Congress expanded the tax credit to existing homeowners, offering up to $6,500 to longtime owners who bought new homes.

The IRS said it has aggressively enforced the use of the tax credit, blocking nearly 400,000 questionable claims and opening more than 150 criminal investigations.

Nevertheless, 1,295 prison inmates were able to get $9.1 million in credits, including 241 who were serving life sentences, the inspector general’s report said. None of the inmates filed joint returns, so the claims could not have been for purchases by spouses.

The IG report estimates that 2,555 taxpayers wrongly received $17.6 million in tax credits for homes purchased before the credit was enacted.

An estimated 10,282 taxpayers wrongly received credits for homes that were also used by other taxpayers to claim the credit. Investigators were unable to quantify the amount of money they received, “but all indications are that the total will be in the tens of millions of dollars,” the IG’s office said in a statement.

Investigators also found 87 IRS employees who may have improperly claimed the credit, though the review was ongoing.

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