Home-Buyer Credit is Focus of Inquiry
Dated: October 20, 2009
The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break, another sign of potential trouble for the soon-to-expire program.
The measure, adopted in February as part of the economic-stimulus bill, gives first-time buyers an $8,000 tax credit in an effort to boost sales and stimulate the moribund housing market. The program is set to end Nov. 30, but housing-industry leaders are lobbying Congress to extend it.
More than a million claims for the credit have been received so far, and housing-industry experts estimated that the credit has helped generate about 350,000 home sales that wouldn’t otherwise have occurred. But some lawmakers and tax experts now say there is evidence that a significant number of the claims might prove to be unjustified, or even fraudulent.
“I am concerned about recent reports that there have been fraudulent schemes involving the credit,” Rep. John Lewis (D., Ga.), chairman of a House Ways and Means oversight subcommittee, said in a statement. The subcommittee is planning a hearing on the problems on Thursday.
The IRS said it was investigating 167 “criminal schemes” involving the credit, according to the subcommittee. IRS officials on Monday declined to describe the suspected schemes or provide additional details.
At a recent hearing of a White House tax advisory panel, Bonnie Speedy, national director of AARP Tax-Aide, a volunteer service for low-income people, suggested that abuse of the home-purchase credit appeared to be widespread, in part because of relatively loose standards for claiming the credit.
The credit “has some fraud issues because it’s not being done at the time of the sale,” said Ms. Speedy. “People are filing for the home credit who don’t have a right to file for it.” Taxpayers don’t have to file their claims as part of a real-estate transaction and instead can file or amend their income-tax returns to claim the credit.
An IRS spokesman said the agency “will vigorously pursue those who filed fraudulent claims” for the credit.
“The IRS recognizes that there is a potential for fraud whenever a new refundable tax credit … is put in place,” agency spokesman Frank Keith said. “As we began implementing this credit in the days after the Recovery Act legislation was passed, we also identified the different types of potential fraud, and matched our compliance program to those abuses.”
A spokesman for the National Association of Realtors, Lucien Salvant, said, “Any time there is a lot of money around, there is going to be people attracted to it with evil intent.”
Housing-industry officials recently have stepped up their lobbying for an extension of the credit. In a letter to the Obama administration on Monday, the National Association of Realtors, the National Association of Home Builders and the Mortgage Bankers Association called for a 12-month extension of the credit. They also asked that the tax break be extended to all home buyers — not just first-time purchasers — and noted that they were urging Congress to expand its value.
“Our fragile economy is just beginning to show signs of recovery,” the letter says. “We should not jeopardize that recovery by letting this tax credit expire.”
Mr. Salvant said the industry groups weren’t suggesting any changes to the credit policy aimed at diminishing possible fraud.
The idea of extending, or expanding, home buyers’ tax credit has been met with skepticism from some lawmakers, who cite the potential costs and impact on the surging federal budget deficits.
One proposal by Sen. Johnny Isakson (R., Ga.) and others to extend the credit and make it available to all home buyers through June 2010 carries a price tag of about $16.7 billion. That proposal would raise the income ceiling for eligible home buyers to $150,000 per year for an individual and $300,000 for a couple. Currently the credit phases out for individuals earning more than $75,000 and married couples earning more than $150,000.
Ted Gayer, an economist at the Brookings Institution, a liberal think tank based in Washington, estimated that the current credit costs the government about $43,000 for each additional home sale it generates, because most of the two million or so home buyers expected to claim the credit would have bought a house anyway. Expanding the credit to all home buyers would raise the government’s cost per additional home sale to more than $250,000, he said.