If you bilked Uncle Sam out of a first-time home buyer tax credit, start looking over your shoulder. Just before Congress extended and expanded the home buyer tax credit, a federal audit revealed that nearly 90,000 taxpayers may have fraudulently enjoyed the credit, hoodwinking the government out of more than $600 million.
The Treasury Inspector General for Tax Administration (TIGTA) initially said the Internal Revenue Service may have allowed about 70,000 taxpayers to claim approximately $480 million in tax credits even though there were "indications" that they were not first-time homebuyers.
The rules define a "first-time" buyer as one who has not owned a home in the past three years.
Another group, more than 19,000 taxpayers, claimed about $140 million in credits for homes they had not yet purchased. If they closed later, they may have been eligible for the credit, but could be audited to verify the purchase anyway.
Under the new home buyer tax credit extension and expansion signed into law last week, new rules to fight fraud say you must actually close escrow and provide proof to apply for the credit, including a sales contract and HUD-1 Settlement Statement.
Among the alleged defrauders, the audit found 582 taxpayers who claimed almost $4 million in credits were under 18 years of age, with some as young as 4 years old. The tax credit is only eligible for those 18 and older.
Following the initial audit, the Internal Revenue Service is now investigating 107,000 cases related to fraudulently claiming credit and, thus far, has identified 167 criminal schemes.
In addition, thousands of tax returns from taxpayers claiming the credit are in for deeper audits.
Cheating the IRS is a federal felony that comes with a fine of up to $250,000 and three years in a federal pen, or both.
Another group of about 48,000 taxpayers didn't get the full credit, but perhaps only because they weren't aware they were eligible.
As part of the Housing and Economic Recovery Act of 2008, Congress first created a $7,500 tax credit for those who purchased a home between April 8, 2008, and July 1, 2009.
Later, under the American Recovery and Reinvestment Act of 2009, Congress extended the credit and raised it to an$8,000 tax credit for those who purchased homes by the November 30, 2009.
Last week, President Obama signed legislation that extended the first timers' tax credit and gave move-up buyers and others a $6,500 tax credit. Both first timers and others now have until April 30, 2010 to contract and June 30, 2010 to close escrow. Qualifying military personnel have until April 30, 2011 to claim the credit.
For taxpayers who don't owe taxes, the credit becomes a refund.
The new rule also raises the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, from the current $75,000 and $150,000.
The maximum allowed home purchase price is $800,000.
By October 9, 2009, more than 1.2 million tax returns had claimed about $8.5 billion in the refundable tax credit, according to TIGTA.
The report said the frauds were able to snooker the IRS because the agency didn't originally use recommended controls available on IRS Form 5405 to prevent fraud. IRS also didn't require taxpayers to provide documentation to verify their eligibility.