First Time Home Buyer Tax Credit Fraud

There are many of us involved in the real estate industry that have been signing petitions and writing blogs about extending the First Time Home Buyer Tax Credit.  We have been stating how great it is for the housing market and all kinds of other positive aspects of the credit.  Well, the IRS dropped a major bomb on us this week, the IRS is investigating more than 100,000 “doubtful” claims of the tax credit intended for First Time Home Buyers.  The IRS is also investigating 167 “criminal schemes”.  Lawmakers are concerned that a significant number of the First Time Home Buyer Credits may be fraudulent (IRS News).

 A Jacksonville tax preparer has already pleaded guilty to falsely claiming the First Time Home Buyer Credit on customer’s tax returns (Busted!).  If you read the article, you will find out that the tax preparer was on probation for forgery and indicted on 35 counts of tax fraud (15 of those for FTHB tax credit).  The preparer took $1000 from each customer, entered a false address and told them they qualified because they worked two jobs.  For those of us who pay attention, this scheme is laughable, but at least 15 people fell for it!

More than 19,000 people filed 2008 tax returns claiming the credit and had not yet purchased a home.  74,000 people claimed to fit the FTHB credit criteria, but had previous ownership in the last 3 years.  The examples of fraud with this credit are numerous (Disturbing).

I get really irritated when I read these types of articles because I had supported the idea of extending the credit because of the First Time Home Buyers that I have worked with that are looking forward to using the credit to make improvements to their homes.  Now I am second guessing myself, is the risk worth the reward?  Is there another way?  I am not naïve enough to think that fraud will stop if the credit is not extended, I would just hope that better control mechanisms would be put in place to minimize future fraud.  DPA anyone?