Congress looks to extend credit despite problems
October 20, 2009 by taxman
Filed under IRS News Items
WASHINGTON – Evidence of potentially widespread abuse won’t deter lawmakers who want to extend a popular tax credit for first-time homebuyers.
The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.
Lawmakers said Tuesday they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program beyond the end of November, when it is scheduled to expire.
House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to “find out about how ethically and how honestly this policy is being pursued.”
Senate Banking Committee Chairman Chris Dodd said, “We still need to use every tool at our disposal” to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.
The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.
About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
“The housing market would not have moved without this tax credit,” said Lucien Salvant, spokesman for theNational Association of Realtors. “It’s a fragile recovery, which is why we think it should be extended.”
It would cost about $1 billion a month to extend the existing credit. The bill sponsored by Dodd and Isakson would cost $16.7 billion, according to congressional projections.
The IRS began special screening procedures for tax returns claiming the credit after it was enacted, said IRS spokesman Frank Keith. For example, taxpayers who previously claimed the mortgage interest deduction would warrant a second look if they claimed the first-time homebuyers credit, he said.
“We have a number of filters in place that we’re using to ensure the claim does not go out to people who are not entitled to it,” Keith said. But, he added, “Just because we’ve opened up a return for examination, we may very well find that many of these are perfectly proper claims.”
Keith said IRS officials have talked with lawmakers about finding better ways to run the program. The House Ways and Means Oversight Subcommittee has scheduled a hearing for Thursday on the administration of the tax credit.
“I am pleased that more than one million taxpayers claimed the first-time homebuyer credit,” Rep. John Lewis, D-Ga., chairman of the subcommittee said in a statement. “However, I am concerned about recent reports that there have been fraudulent schemes.”
Lewis said the hearing will examine whether the IRS needs additional tools to run the program.
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IRS warned again of homebuyer credit fraud
October 20, 2009 by taxman
Filed under IRS News Items
WASHINGTON (Reuters) – The internal watchdog for the U.S. Internal Revenue Service is expected to warn the agency for the fourth time about fraud in the multibillion dollar homebuyer tax credit program, according to a report to be released at a congressional hearing later this week.
About 1.4 million tax returns have been filed to take advantage of the United States’ $8,000 credit and many lawmakers want to extend the credit, which expires on November 30. It has cost the U.S. government about $10 billion.
The IRS faces significant challenges preventing individuals from scamming the tax credit program, the inspector general for tax administration for the U.S. Treasury Department will tell lawmakers on Thursday.
The inspector general found at least 70,000 tax credit claims, totaling $489 million, were granted to individuals who do not appear to qualify for it. These include those who had filed recent mortgage interest deduction forms, indicating they do not qualify.
Potential for fraud exists whenever a new refundable credit is put in place and the agency will vigorously pursue those it believes have filed fraudulent claims, IRS spokesman Frank Keith said.
The agency has opened 107,000 civil cases related to the credit and identified 167 criminal schemes, he noted. In addition, “we have selected thousands of returns for those claiming the credit for deeper examination.” he said.
The law creating the tax credit for those who meet certain income limits was enacted to help jump start the moribund housing market. Critics say it doles out funds to those who would have purchased a home anyway.
The housing chief for the Obama administration on Tuesday expressed doubts the United States could afford to extend the credit. Housing and Urban Development Secretary Shaun Donovan said the administration would decide in coming weeks whether it backs an extension.
The issue of fraud in the tax credit program surfaced in November 2008 when the inspector general warned internal IRS controls were not adequate to prevent scams. The IRS disagreed with a recommendation a third party verify a home purchase, arguing it would be burdensome to homebuyers.
The IG also warned the agency about fraud in March and September of 2009.
The IRS installed computer filters, after an IG recommendation, so those who filed for a home mortgage interest deduction could not also claim the first-time tax credit.
A bipartisan group of lawmakers, including Senate Majority Leader Harry Reid, want to extend the credit, with some wanting to double it and broaden it to all homeowners.
“We can’t let fraudulent activity undermine a program that has benefited so many,” the IRS spokesman, Keith, said.
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