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Homebuyer Credit Tax Fraud for Fun and Profit

This week, IRS released tax tips about the homebuyers credit, which also happens to be the subject of this week’s TaxWatch column. Just in time, the Justice Department also released their news about the homebuyers credit – a list of indictments issued and lawsuits filed against tax preparers who filed false or fraudulent claims for the homebuyers credits.

Associated Press

Considering the millions of dollars stolen by these people, at a time when the U.S. Treasury is already seriously depleted, it’s a relief to know that criminals are being caught (as detailed in the Tax Blog post about easy money in refundable tax-credit fraud).

Of course, I simply can’t see why these tax professionals engaged in this fraud. There simply isn’t enough profit in it for them to run the risk to their future livelihood.

In a way, I have to envy those preparers who took a short-cut in filing their homebuyers credit claims. Simply by knocking out tax returns and phony documents, you can complete those tax returns in no time at all.

My office filed over 1,000 claims for a national home community developer. We sweated over each and every tax return, meticulously gathering documents from the buyers and the seller, trying to ensure that IRS had enough proof of the purchase and residency. Sometimes, getting proof of prior home ownership, or lack of it, took creativity. Everyone has special or unusual issues.

Friends who were buying homes together are allowed to split the credit any way they choose. So we developed forms to help protect us, the developer and the buyers, in case anyone later changed their mind about the credit split. We dealt with divorce issues, family issues, bankruptcy and even someone who was absent from home– in prison– after buying the house. Each tax return took hours, instead of the hour or so we had anticipated. Reality is complicated.

Then we learned that homes were being bought by people without proper Social Security numbers or with ITINs (individual taxpayer identification numbers). We researched the issue and discovered that they were, indeed, eligible for the homebuyers credit. The IRS Press Office cleared it with IRS counsel, as I wrote in MarketWatch’s TaxWatch to make other homebuyers in a similar situation aware that it was possible for them to claim the credit legally.

The experience of trying to get this all done correctly was so harrowing that we all nearly had nervous breakdowns from the volume and stress. That’s just in our office. Can you imagine IRS’s campuses where they must have processed over a million claims for refund?

We’re still battling our way through the last 100 or so rejections. So far, we’ve won on all cases, except one, where the buyer lied about her previous home ownership. Thank goodness for the Taxpayer Advocate Service. They are helping us with these last few unresolved cases.

If you want to make your life easy and rake in a bunch of money, it’s easy enough make up fake documents and file for the various refundable tax credits. Free online forms and a top-notch laser printer make it easy. So does easy access to the purchase of data containing personal information.

But I’ve got news for you: You’re only going to get to use that money for a little while. Be sure to squander it on luxurious trips, great entertainment and gourmet foods.  You’re going to need those memories to sustain you in prison.  The IRS and the Justice Department are getting better and better at cross-referencing data, seeing patterns, catching fraud – and prosecuting taxpayers.

Readers, how much fraud do you think goes undetected?


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About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.