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Tax credit claims spark IRS investigation
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With the approaching November 30 deadline of the First-Time Home Buyer Tax Credit, the Internal Revenue Service (IRS) is investigating more than 100,000 claims for the credit that may have been unjustifiably or fraudulently filed. Established in February of this year, the tax credit offers first-time buyers that meet eligibility requirements up to $8,000 with no repayment requirement. It is estimated that 1.4 million people across the country have taken advantage of the credit.
IRS officials were not caught off-guard by this misuse. In fact, shortly after passage of the Recovery Act, which made provisions for the tax credit, the agency had already identified possible schemes and built a compliance program accordingly. The ease of claiming the tax credit is one possible factor—buyers aren’t required to prove eligibility during the real estate transaction. They simply file or amend their tax return. So far, the IRS has identified 167 possible schemes among the claims.
A House Ways and Means subcommittee is planning a hearing this Thursday to discuss the problem, as several bills sponsored by members of Congress seeking to extend or expand the credit await review. U.S. Senator Benjamin Cardin (D) has submitted a bill that will extend the tax credit until June 1, 2010. Georgia Senator Johnny Isakson (R) has proposed a bill that expands the credit to buyers with higher-incomes; allows all buyers to receive the credit, instead of only first-time buyers; and increases the credit from $8,000 to $15,000.
While housing-industry leaders support an extension of the credit, the IRS investigation could curtail these efforts. According to the Maryland Association of REALTORS, sales of existing homes in Maryland rose by 13.6 percent in August from August 2008. This marks the fourth consecutive month that year-over-year sales have increased. John Kortecamp, Executive Vice President and CEO of the Home Builders Association of Maryland said of the tax credit: “It’s gotten people off the sidelines.” According to industry experts, the First-Time Home Buyer Tax Credit has generated 350,000 home sales that would not have existed otherwise.
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