- The Washington Times - Monday, October 26, 2009


Taxpayers aren’t the only ones who need fear an audit. The Internal Revenue Service gets its own audits, and the latest isn’t just embarrassing to the IRS, which finds the tax code too complicated to enforce properly. The Democratic Congress, so fond of adding new doodads and gewgaws to the vastly overfestooned revenue laws, should be red-faced as well.

It all started with a targeted tax cut. In an effort to slow the real estate meltdown, in 2008 Congress passed a tax credit for first-time homebuyers and then, in 2009, increased the credit and expanded the time limit.

Of course, the first reaction of the IRS was to create more paperwork - IRS Form 5405 to keep track of the new credit. More paperwork always helps. Even with the fresh flow of paper, the agency proceeded to flub administration of the credit in a number of entertaining ways.

Should 4-year-olds with neither income nor the ability to sign contracts be able to get the credit? Check. According to the Treasury Department inspector general, 580 taxpayers younger than 18 landed $4 million.

Should taxpayers who haven’t bought a house but say they will in the future get to claim the credit? Check. Almost 20,000 of those in 2008 resulted in $139 million in potentially dishonest credits.

Should taxpayers whose past returns indicate they have owned a home - such as claiming the mortgage interest deduction or mortgage insurance or loan points from closing on a house or the residential energy credit (for improving your home’s energy efficiency) or even the District’s “First-Time Homebuyer Credit,” which was in place before the new credit - get to claim the credit? Check. More than 70,000 taxpayers who probably weren’t really first-time homebuyers landed $480 million.

And it isn’t just a matter of confused or ethically challenged taxpayers ripping off Uncle Sam. Fifty thousand taxpayers likely missed out on $500 worth of credits each because they were confused by the fact that the credit was for $7,500 in 2008 and $8,000 in 2009. Only a fraction have noticed the mistake and amended the returns, while the IRS, according to the Treasury Department inspector general, originally planned to look the other way and pocket the money.

Having administered the new credit for a couple years, the IRS reports it has things under control and is working to correct past years’ mistakes. But that won’t stop more tax-code tinkering sure to unleash new waves of confusion and fraud. Congress is already considering expansion of the credit and changes to some details. Perhaps congressional tax writers might want to consider stimulating the economy by making taxes simpler, perhaps simple enough that the IRS can administer them correctly the first time.

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