The first-time home buyer credit is a classic example of the adage that no good deed goes unpunished.
The IRS says that so far it has paid out almost $10 billion in tax benefits to low- and middle-income Americans who claimed the first-time home buyer tax credit, which was increased to $8,000 in February.
However, as is usually the case when it comes to taxes, folks who aren't eligible for the tax break are trying to get Uncle Sam's money -- which is, after all, our money -- anyway.
Credit claims, good and bad: In mid-September, the IRS reported that 1.4 million taxpayers had claimed the credit, with the dollar amount coming to nearly $10 billion.
But by the end of May, the Treasury Inspector General for Tax Administration (TIGTA) found more than 70,000 returns had been filed by folks who appeared to be ineligible for the credit. In its analysis of the 2009 filing season, TIGTA said those apparently bogus claims totaled $489 million.
That people cheat on their taxes is no surprise to anyone, especially the IRS. It's been on guard for home buyer credit cheats from the get go, since any new tax law and the accompanying confusion means that people make mistakes or try to rip off Uncle Sam.
So far, the IRS has opened 107,000 civil tax cases involving possibly fraudulent first-time home buyer credit claims. And it continues to pay closer attention to 1040s on which the tax break appears.
Congressional inquiries: As you would and should expect, tax-cheating in connection with this popular credit has gotten Congress' attention.
According to CCH, House Majority Leader Steny H. Hoyer (D-Md.) favors extending the credit for one additional month, through December 31, to accommodate sales contracts entered into, but not yet settled. During that extra 30 days, Hoyer said Congress should study the credit to determine its effectiveness as well as its ethical and honest usage.
Meanwhile, the House Ways and Means Oversight Subcommittee will examine fraud problems with the credit at a hearing tomorrow.
In announcing the hearing, Chairman John Lewis (D-Ga.) said, "I am pleased that more than one million taxpayers claimed the first-time home buyer credit. However, I am concerned about recent reports that there have been fraudulent schemes involving the credit. This hearing will allow the Subcommittee to hear what, if any, additional steps should be taken to allow the IRS to strike a balance between issuing timely refunds of the home buyer tax credit and protecting federal revenue."
"We want to thoroughly look at all of these reports to make sure the program has integrity before we consider extending it," the subcommittee's ranking minority member Charles W. Boustany Jr. (R-La.) told Tax Analysts.
One possible remedy is giving the IRS additional fraud detection authority, such as the ability to correct, without taxpayer consent, math errors for taxpayers who, for example, claim the credit in both 2008 and 2009.
No word yet on possible Senate action in connection with reported tax credit fraud.
However, Senate Finance Committee Chair Max Baucus (D-Mont.) has gone on record as supporting a three-month extension of the $8,000 first-time home buyer tax credit.
Baucus also wants lawmakers to offset the renewal's cost. That would mean cutting programs elsewhere or raising someone's taxes.