Audit finds thousands wrongfully received the home buyers' tax credit

A government audit has found that thousands of taxpayers have fraudulently claimed the first-time home buyers' 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 and will examine returns of prisoners and "scrutinize all other inappropriate claims."

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 all prisoners serving life sentences who received the credit were incarcerated there.

The IRS updates its prisoners list annually. Some of the prisoners who filed for the credit were committed to prison between the updates, although a check found that 86 of a 306-inmate sample who claimed the credit did appear on the IRS list.

Among filers outside of prison, 256 used the same five addresses for their claims. In fact, 18,832 filers used just 7,695 addresses to claim a total of $134 million in refunds.

Of the 18,832 filings, 5,331 were filed by 1,941 paid preparers, the audit found.

The audit also found that about 2,500 taxpayers erroneously received a total $17.6 million in credits for houses they bought before the tax credit took effect.

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

The second, with a maximum of $8,000 for first-timers, did not need to be repaid. It was approved in February 2009 and expired Nov. 30.

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 have until June 30 to close on their purchases. That deadline is likely to be extended to Sept. 30 because 180,000 qualified buyers cannot meet it.

All told, the "working estimate" of new and existing sales qualifying for the credits is 4.4 million, National Association of Realtors spokesman Walt Molony said.