Posted: Jun 23, 2010 10:52 AM by Melissa Canone
Updated: Jun 23, 2010 10:58 AM
WASHINGTON (AP) - Nearly 1,300 prison inmates wrongly received
more than $9 million in tax credits for homebuyers despite being
locked up when they claimed they bought a home, a government
investigator reported Wednesday.
The investigator said 241 of the inmates were serving life
In all, more than 14,100 taxpayers wrongly received at least
$26.7 million in tax credits that were meant to boost the nation's
slumping housing markets, said the report by J. Russell George, the
Treasury Department's inspector general for tax administration.
Some taxpayers received the credit for homes purchased before
the tax break was started. In other cases, multiple taxpayers
improperly used the same home to claim multiple credits.
Investigators found one home that was used by 67 taxpayers to claim
"This is very troubling," George said. "Congress created and
modified the homebuyer credit to stimulate the economy and help
taxpayers achieve the American dream, not to line the pockets of
The Internal Revenue Service says it is taking steps to get the
money back. The agency noted that more than 2.6 million taxpayers
claimed the tax credit through April - claiming $18.7 billion in
credits - with only a tiny fraction going to prison inmates or
"A very small number of payments were made to prisoners
incorrectly, which the IRS is now taking all steps to recapture and
to prevent going forward," the IRS said in a statement. "The IRS
will follow up on every instance of an improper prisoner payment
and take swift and appropriate enforcement actions."
The report blemishes an otherwise popular tax break that was
sweetened once by President Barack Obama's economic recovery
package and again when Congress extended it into the spring. The
National Association of Realtors says the tax credit has generated
1 million new home sales that wouldn't have happened otherwise.
"Last year, we learned that children and persons who did not
purchase homes were fraudulently claiming the first-time homebuyer
credit," said Rep. John Lewis, D-Ga., chairman of the House Ways
and Means oversight subcommittee. "Although I am pleased that the
fraud identified earlier does not continue, I am concerned about
prisoners claiming the credit."
Congress started the first-time homebuyer tax credit in 2008,
providing couples up to $7,500 that had to be repaid, free of
interest, over 15 years. The credit was essentially an
Last year, Obama and Congress upgraded the credit significantly,
increasing the top amount to $8,000 and ending the requirement that
it be repaid.
George's report targets taxpayers who claimed the first-time
homebuyers tax credit under these two programs. Since then, in
November, Congress expanded the tax credit to existing homeowners,
offering up to $6,500 to longtime owners who bought new homes.
The latest program is about to expire. Homebuyers had to sign
purchase agreements by April 30 and close by June 30, though there
is a movement in Congress to extend the closing deadline until
The IRS said it has aggressively enforced the tax credit,
blocking nearly 400,000 questionable claims and opening more than
150 criminal investigations.
"These aggressive efforts have saved taxpayers more than $1
billion," the IRS said in its statement.
Nevertheless, 1,295 prison inmates were able to get $9.1 million
in credits, in part because the IRS does not keep up-to-date
records of who is in prison, the IG's report said. None of the
inmates filed joint returns, so the claims could not have been for
purchases by spouses.
The IRS said that while many prisons voluntarily provide
information about inmates, they are not required to do so.
"When IRS has reliable data, we do a very effective job of
using it to ensure compliance," IRS spokesman Frank Keith said.
"When IRS does not have reliable data, it is a much more difficult
process for us."
The IRS is asking Congress to enact legislation to ensure that
the agency gets up-to-date inmate information, Keith said. In the
meantime, the IRS plans to reach out to local, state and federal
prison officials to start a task force to improve
information-sharing on inmates.
The IG report estimates that 2,555 taxpayers wrongly received
$17.6 million in tax credits for homes that were bought before the
credit was enacted.
An estimated 10,282 taxpayers wrongly received credits for homes
that were also used by other taxpayers to claim the credit.
Investigators were unable to quantify the amount of money they
received, "but all indications are that the total will be in the
tens of millions of dollars," the IG's office said in a statement.
Investigators also found 87 IRS employees who may have
improperly claimed the credit, though the review was ongoing.