There’s always something to howl about

Fraudulus: Money for Nothing, Tax Credits for free!

Incredibly, the IRS cannot do a lot to stop you, or anybody, from cashing in on the stimulus tax credits.

According to the Treasury Inspector General for Tax Administration, the IRS is “unable to verify eligibility for the majority of Recovery Act benefits at the time a tax return is filed.” That doesn’t mean they can’t audit you, but only a small portion of filers are audited.  If audited, you would have to correct any mistakes and you might face penalties.

Understand that the IRS prefers that you file electronically for efficiency reasons.  They rely on taxpayers to provide accurate information.

For example, the inspector general recommended that the IRS require taxpayers to provide documentation to verify first-time homebuyer credit claims, but the IRS said no. Such a requirement, officials said, “would be burdensome and would potentially exclude as many as 2 million taxpayers from electronically filing.”

It wasn’t until the Worker, Homeownership and Business Assistance Act of 2009 was signed into law on Nov. 6 that additional documentation was required for the credit and the IRS was given additional authority with respect to returns that did not include that documentation.

Moreover, the IRS did not have math error authority – meaning that officials are not authorized to check calculations – to stop payment of erroneous credit claims. In essence, the IRS relied on taxpayers to be honest, didn’t require hard documentation and could not check the math on certain credits.

That same article quoted above has a sidebar titled “Getting money you don’t deserve.” It goes through a hypothetical scenario of how the First Time Homebuyer Tax Credit can be scammed for extra benefits.  The limitations of e-filing do not allow the IRS to transfer paper documentation to electronic format.  So, there is a level of trust in the system.  There is a level of trust in the system that the 73,799 taxpayers who are suspected of not correctly claiming the tax credit as of last July do not justify.  Those suspected incorrect claims may total $504 million.

Expect more news of fraud as this version of the Homebuyer Tax Credit, and other stimulus credits, wind down if they ever do.  Thank the NAR and NAHB, and your support as Realtors, for another program we can be proud of.

Related posts:
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  • Embrace the Homebuyer Tax Credit: Solution to the Problem
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  • 1 comment

    1 Comment so far

    1. Jennifer Giraldi February 22nd, 2010 10:55 am

      Wow, I never thought about this in that context. So what you are saying is that there will be many people falsifying their tax returns and including the first-time homebuyer tax credit when they didn’t even qualify!! Amazing. You are correct about the IRS only auditing a small percentage of filers, so that means hundreds if not thousands will get away with free money and never get caught. Great article Al, and thanks for sharing.