WASHINGTON -- The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its latest report on the Internal Revenue Service's efforts to identify and prevent fraudulent First-Time Homebuyer Credits (Homebuyer Credits) claimed on 2008 U.S. Individual Income Tax returns and amended returns.

Among the report's findings: $9.1 million went to 1,295 prisoners who were incarcerated at the time they reported that they purchased their home.

In addition, TIGTA estimates that 2,555 taxpayers received inappropriate Homebuyer Credits totaling $17.6 million for home purchases made prior to the dates allowed by the law.

"This is very troubling," said J. Russell George, the Treasury Inspector General for Tax Administration. "Congress created and modified the Homebuyer Credit to stimulate the economy and help taxpayers achieve the American Dream, not to line the pockets of wrongdoers."

"The good news is that the IRS has made significant strides resolving problems associated with this program. For example, no minors received the Credit, according to our report. However, the bad news is that prisoners are allegedly improperly receiving the Credit for buying homes while they are incarcerated," Mr. George said. "While the IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate credits from being issued, our audit found that additional controls are necessary to address erroneous claims for the Credit," he added.

Congress passed a series of legislative provisions that enabled first-time homebuyers to claim a refundable credit on their 2008, 2009, or 2010 individual Federal tax returns. The Credit is equal to 10 percent of the purchase price of the home, limited in most cases to $8,000. Initially, the credit served as an interest-free loan (up to $7,500) to be paid back over a 15-year period. However, subsequent legislation excluded the pay-back requirement. According to the IRS, 1.8 million taxpayers received $12.6 billion in Homebuyer Credits through the end of February of 2010.

While the IRS has taken steps to improve its oversight of the program since a TIGTA report issued in September, 2009, TIGTA's new report found a significant amount of fraudulent and erroneous payments in the First-Time Homebuyer Credit Program.

In its new report, TIGTA estimates that 14,132 individuals received erroneous credits totaling at least $26.7 million. These erroneous credits included:

• 2,555 taxpayers receiving credits totaling $17.6 million for homes purchased prior to the dates allowed by law.
• 1,295 prisoners receiving credits totaling $9.1 million who were incarcerated at the time they reported that they purchased their home. These prisoners did not file joint returns, so their claims could not have been the result of purchases made with or by their spouses. Further, TIGTA found that 241 prisoners were serving life sentences at the time they claimed that they bought new primary residences.
• 10,282 taxpayers receiving credits for homes that were also used by other taxpayers to claim the credit. (In one case, TIGTA found that 67 taxpayers were using the same home to claim the credit.) TIGTA auditors have not fully quantified the total of these erroneous credits, but all indications are that the total will be in the tens of millions of dollars.

Some of the improper payments involve IRS employees, TIGTA found. At least 34 IRS employees claimed the Credit despite indications that they owned a home within the past three years. This is in addition to the 53 IRS employees that TIGTA identified in August 2009. TIGTA's Office of Investigations continues to investigate all of these cases. TIGTA recommended that the IRS: conduct an analysis to identify multiple taxpayers claiming the same home for the Credit and perform post-refund examinations to ensure that refunds for the invalid claims are recovered, and identify claims for homes purchased prior to the effective date of the legislation. In addition, TIGTA recommended that the IRS increase its scrutiny of questionable claims for the Homebuyer Credit on amended tax returns and improve the collection of data on the national prisoner population. The IRS agreed with the recommendations.