Fraud alleged in 1 of 10 home buyer tax credit claims

As is usually the case whenever "free money" is involved, fraud rears its ugly head and potentially ruins the "free" for everyone.

While the Obama administration has yet to announce whether or not the first time home buyer tax credit will be extended, the fact that potentially one out of every ten of the claims is fraudulent does not bode well for an extension.

It has been estimated that the actual cost of each $8,000 credit is really $43,000 cost to the government, because most of the 2,000,000 plus home buyers expected to claim the credit would have bought anyway. That number surely rises with the cost of investigating more than 100,000 of those claims, and rises even more when 167 of those claims are criminal investigations.

If the tax credit extension were to be exteneded to all home buyers, the actual cost will approach $250,000 per home sale.

"The IRS recognizes that there is a potential for fraud whenever a new refundable tax credit … is put in place," agency spokesman Frank Keith said. "As we began implementing this credit in the days after the Recovery Act legislation was passed, we also identified the different types of potential fraud, and matched our compliance program to those abuses."

While "IRS officials on Monday declined to describe the suspected schemes or provide additional details,” one only has to look back to the fraud committed during the housing boom to know that some of the activity very likely involves the use of "straw" buyers in the home purchases and claims.

Straw buyers are those who allow their income and credit to be used to qualify for a home mortgage, for a home they say they intend to occupy, but have no intention of occupying. This is fraud, and is more common than most people believe. It can be as unintended as asking a sibling or parent to obtain the loan for you, to very criminal indeed, where businesses use these false loan papers to obtain home owner rates on loans that are meant as investments. Frequently, criminal ring, pay the named home owner a fee for allowing the business to show them as the home owner.

An IRS spokesman said the agency "will vigorously pursue those who filed fraudulent claims" for the credit.

It is estimated that more than two million people will ultimately file claims for the $8000 tax credit by the time this program ends at midnight November 30, 2009.

Other articles you might be interested in reading:
Home buyer tax credit to be extended for the military
Don't let Thanksgiving cost you the $8000 tax credit

Resources:
WSJ - Home buyer credit is focus of inquiry

Photo: IRS building on Constitution Ave, Washington D.C.