WASHINGTON -- While the Internal Revenue Service (IRS) has made improvements in its

processing of First-Time Homebuyer Credits, additional steps are necessary to prevent erroneous

claims for the Credit on amended returns, according to a new report publicly released today by

the Treasury Inspector General for Tax Administration (TIGTA).

Many taxpayers who purchased a home in 2008, 2009, or 2010 were able to take advantage of

the Homebuyer Credit and claim up to an $8,000 refundable credit on their tax return. The

Homebuyer Credit may be an interest-free loan or a fully refundable Credit depending on when

the taxpayer purchased his or her home. Taxpayers have several filing options to claim the

Homebuyer Credit, one of which is filing an amended tax return. The IRS reported that as of

January 29, 2011, it had processed more than 1.4 million amended claims for Homebuyer Credits

totaling more than $10 billion.

TIGTA reviewed whether the IRS had controls in place to ensure that Homebuyer Credits

claimed on amended U.S. Individual Income Tax Returns (Forms 1040X) were appropriately

processed. Its report found that taxpayers inappropriately changed their home acquisition date

on amended returns to avoid repayment of their Homebuyer Credit. In addition, some taxpayers

received multiple refunds of the Homebuyer Credit. Many questionable claims for the

Homebuyer Credit were not appropriately sent to the IRS's Examination function for scrutiny.

"While in response to our previous recommendations the IRS took a number of positive steps to

process Homebuyer Credits claimed on amended returns, this report found additional issues

related to the Credit," said J. Russell George, Treasury Inspector General for Tax

Administration. "Additional controls are needed to prevent inappropriate claims on amended

returns," the Inspector General added.

TIGTA also found that the IRS paid an estimated $37 million in interest on claims for the time

period prior to actual home purchase dates. It is unclear whether Congress intended for this

interest to be paid. Finally, some claims for the Homebuyer Credit were significantly delayed.

TIGTA recommended that the IRS:

• implement procedures to identify taxpayers who change the year when their

  home was purchased or receive more Homebuyer Credit than they are entitled to,

  and recover invalid claims through examinations;

• ensure that employees receive proper training and perform quality reviews of

  Homebuyer Credit claims;

• identify interest-related issues on any future legislation and work with the

  Department of the Treasury's Office of Tax Policy to request clarification from

  Congress, if warranted; and

• ensure that timeliness standards are adhered to when cases are referred to the

  Examination function.

IRS management agreed with TIGTA's recommendations and has initiated appropriate

corrective actions.