Tax Credit Clowns Come to the Housing Circus

Is your First-Time Home Buyer Tax Credit claim legit?

I’m all for extending the 2009 First-Time Home Buyer Tax Credit. Heaven knows U.S. citizens still need assistance with purchasing homes and for many, the program has proven a dream come true. Sales of existing homes have surged, especially as the federal boost will let down Nov. 30 – the date by which all eligible sales must close.

But, really? I mean, really? The program is designed to stimulate the economy, get the housing market moving again, make it possible for first-time homebuyers (and/or those who haven’t owned a home in three years) to realize “the dream.” I highly doubt legislators ever intended it to be a free-for-all for fraudulent claimants to seize this moment of economic distress and governmental generosity.

There’s one in every crowd. According to an Oct. 23 Los Angeles Times business article by Tiffany Hsu, there are many thousands of clowns in the crowd of supposed “first-time home buyers,” seeking an $8,000 2009 tax credit who simply want to beat the system.

Hsu reports the federal tax credit has attracted – get this – 90,000 ineligible claimants. One 4-year-old child will be sorely disappointed when the government refuses a claim that the bright young child is already investing in real estate.

Through late August, more than 1.4 million claims have been made for the home buyer’s credit, according to Hsu’s article. Hundreds of thousands more claims are expected when tax returns are filed in 2010. It is estimated that about 60 percent of those claiming credits have incomes below $50,000. Altogether, the Feds expect to pay out about $18 billion in tax credits. I think that’s just great. It’s healthy for the economy. It’s amazing and wonderful and fabulous for the housing industry. Unfortunately, Americans are not just looking this gift horse in the mouth, but climbing right down its throat in search of more green.

Here are a few more interesting points I pulled from Hsu’s article and want to share with you:

• Suspicious tax credit claims totaled more than $600 million
• Through late August, more than 19,000 taxpayers listed the credit for properties that hadn’t been purchased. The claims totaled a worth of almost $140 million
• Nearly 74,000 purchasers claimed nearly $504 million in tax credits … but they, uh, appeared to already own a home
• 582 “first-time home buyers” were 18 years old or less – these progressive children claimed nearly $4 million in stimulus credits
• 3,200 taxpayers claimed nearly $21 million through tax returns filed with individual taxpayer identification numbers, often used by nonresident aliens, who are excluded from the program
• Many Internal Revenue Service employees were among the taxpayers who wrongly claimed the credit
• The IRS has discovered 167 criminal schemes, opened 115 criminal investigations and temporarily frozen more than 110,000 refunds

People filing fraudulent claims tend to give the real estate industry a bad name. The assumption is that someone, someone has to be helping them to take advantage of a program intended to help our economy, not drain it.

Tax credits are good. Fraudulent claims are very, very bad. It’s a simple assessment of a very complicated situation … I’m just saying …

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Joel Carson is president and owner of Prudential Utah Real Estate in Salt Lake City, Utah. For more information visit http://www.pureutah.com.