Audit says IRS missed false tax-credit claims

PHILADELPHIA – A government audit has found that thousands of taxpayers have fraudulently claimed the first-time homebuyers’ credit, and the Internal Revenue Service apparently missed them all.

The fraudulent claims – some from prison inmates serving life sentences – totaled about $134 million, according to the Treasury Inspector General for Tax Administration.

Some of the “questionable claims” for refunds were made by 87 IRS employees nationwide, according to Michael R. Phillips, the deputy inspector general for audit.

IRS management said it agreed with all of the audit’s recommendations to strengthen controls.

There were three sets of tax credits. The first, approved in July 2008, was an interest-free loan that offered $7,500 to qualified first-time buyers that would be then repaid to the Treasury in $500 increments over 15 years.

The second, a maximum of $8,000 for first-timers, didn’t need to be repaid, was approved in February 2009 and expired Nov. 30, 2009.

On Nov. 5, the tax credit was extended, and a maximum $6,500 added for qualified buyers who had not purchased a primary residence in five years or more.

The extension expired April 30, although buyers had until June 30 to close on their purchases. That deadline is likely to be extended to Sept. 30 because 180,000 qualified buyers can’t meet it.

Fraudulent claims filed by 1,295 prison inmates added up to about $9.1 million on 2008 returns. Florida prisons generated the highest number of claims – 61 percent of prisoners serving life sentences who received the credit were incarcerated there.