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IRS Wrongly Paid $513M in Home-buyer Credits

April 16, 2011 ( The Internal Revenue Service has paid more than a half-billion dollars in home-buyer tax credits to people who probably did not qualify, a government investigator said Friday.

Most of $513 million in questionable claims, about $326 million, went to more than 47,000 taxpayers who did not qualify as first-time home-buyers because there was evidence they had already owned homes, said the report by J. Russell George, the Treasury inspector general for tax administration.

"The IRS has taken positive steps to strengthen controls and help prevent the issuance of inappropriate home-buyer credits," George said. "However, many of the actions occurred after hundreds of thousands of home-buyer credits had already been issued, including fraudulent and erroneous credits totaling millions of dollars."

The popular credit provided up to $8,000 to first-time home-buyers and up to $6,500 to qualified current owners who bought another home during parts of 2009 and 2010.

IRS spokeswoman Michelle Eldridge said the agency worked hard to enforce a complicated tax credit that provided nearly $29 billion to more than 4 million taxpayers. The agency audited nearly 448,000 returns and blocked or denied nearly 426,000 questionable claims, she said.

In all, the agency's enforcement efforts saved more than $1.3 billion and identified more than 200 criminal schemes, she said.

Among the report's findings:

l More than 13,400 taxpayers claimed the credit even though they had not yet purchased a home. These people listed future purchase dates on tax forms. The report estimated that they claimed $97.8 million in credits, but the IRS said it thinks these estimates are overstated.

l More than 1,000 taxpayers said they purchased homes while they were in prison, claiming $7.7 million.

l More than 2,700 taxpayers claimed credits for homes that were purchased before the tax credit went in effect. These taxpayers received $17.6 million.

l The IRS disallowed $531,134 in tax credits claimed by 96 taxpayers who were younger than 18, making it unlikely that they purchased a home.


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