Gov’t Wrongly Gave Away $513 Million in Tax Credits


NEW YORK (MainStreet) – An investigation into the first-time homebuyer tax credit found that $513 million in tax breaks went to taxpayers who weren’t actually eligible for the credit.

That’s the finding of the Treasury Department’s Inspector general, which today released the results of its investigation of the administration of the credit.

The first-time homebuyer credit allowed people who bought their first home in 2008, 2009 and 2010 to claim up to $8,000 in tax credit, but many of those claiming this did not actually qualify for it. Most notably, the report estimated that approximately $326 million went to almost 50,000 taxpayers who had previously purchased homes, and another $98 million went to taxpayers who simply planned to buy a home at a future date. And in a repeat of a previous bungle involving stimulus checks, more than a thousand prisoners received more than $7 million worth of tax credits.

The report primarily faults the lack of controls put in place by the Internal Revenue Service to prevent such fraud from occurring, though it does say that the agency eventually took steps to put appropriate filters in place.

“However, the implementation of the filters and passage of this legislation occurred after many Homebuyer Credits had already been issued, including fraudulent and erroneous Credits totaling millions of dollars,” notes that report.

In addition to the steps already taken by the IRS – which, as the report observes, resulted in the denial of an additional $434 million in illegitimate claims – the report recommends that the IRS requires taxpayers to provide documentation proving their eligibility. It also suggests that the IRS make efforts to recover some of the half a billion in inappropriately dispersed credits.

Finally, the report’s author acknowledges that the IRS has partially or fully agreed with all the report’s recommendations, and hopes that they’ll enact the recommended changes in a timely manner.

“The IRS management needs to take a much more timely and proactive approach to prevent fraudulent claims for refundable credits than they agreed to take in their response,” the report concludes.

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