Prison Inmates Con Fed Out of $9 Million in Homebuyer Tax Credits

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Prison Inmates Con Fed Out of $9 Million in Homebuyer Tax Credits

Posted by Alex Finkelstein 07/06/10 8:00 AM EST
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With nothing to lose and time on their hands, more than 1,200 inmates in U.S. prisons, including 241 serving life sentences, cashed in on the federal government's home purchase tax incentive.

They received a total $9.1 million in homebuyer tax credits.

Those behind bars for life were granted $1.7 million.

A breakdown in fraud controls allowed the inmates to apply for and receive the credits, according to an audit conducted by the Treasury inspector general for tax administration.

A penitentiary return address may have been the most obvious red flag of an erroneous claim, but the Treasury inspector general found a number of other areas where fraud proliferated, DSNews.com reported.

They included:

The IRS allowed multiple claims for the same home.
Claims totaling an estimated $17.6 million were permitted for homes purchased before the tax credit program began.
"Questionable" claims by IRS employees themselves.

The report states the IRS is trying to devise a system that would close the loopholes found by the inmates.

Richard Byrd, commissioner of the IRS' wage and investment division, responded to the audit report in a letter to the inspector general.

He emphasized that between August 2008 and November 2009, Congress passed three different version of the homebuyer tax credit, each of which required the IRS to develop new forms and guidance, re-program systems, and develop compliance filters.

"The IRS is running a well-rounded compliance program that has helped protect the interest of the nation's taxpayers," Byrd said.

He pointed out that his organization has identified 98 potential criminal schemes, opened 155 criminal investigations, and recommended seven prosecutions, DSNews.com reported.

Byrd also says 285,504 claims were denied in upfront processing because they lacked the proper documentation.

In addition, 112,852 refunds totaling $785 million have been frozen pending an investigation and 114,418 post-refund audits have been conducted by the IRS, resulting in a denial of $438 million in claims.

Byrd says the IRS has worked diligently to ensure that the millions of taxpayers who are eligible for the federal tax credit receive it.

In his letter, he noted that through February 2010, over 1.8 million taxpayers received more than $12.6 billion in homebuyer tax credits.

The homebuyer tax stimulus is largely credited with giving a much needed lift to home sales by creating a sense of urgency for potential buyers to move off the sidelines.

It gave $8,000 to first-time buyers and $6,500 to current homeowners looking to purchase a new primary residence.

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