Thursday, 06.24.10

WASHINGTON -- Living in prison didn't stop nearly 1,300 inmates -- 241 of them serving life sentences -- from cashing in on a popular tax break for first-time home buyers, a government investigator reported Wednesday. Their take: more than $9 million.

In all, more than 14,100 tax filers wrongly received at least $26.7 million in tax credits 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.

A common scam had multiple taxpayers using the sale of a single home, with each claiming the credit. One home was used by 67 tax filers, the report said. In other cases, taxpayers got credit for sales that happened before the tax break started.

``This is very troubling,'' George said. ``Congress created and modified the home-buyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers.''

The Internal Revenue Service said 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 other scofflaws.

``The IRS will follow up on every instance of an improper prisoner payment and take swift and appropriate enforcement actions,'' the IRS said in a statement.

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 said the tax credit has generated a 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 home-buyer 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.''

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 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 found 87 IRS employees who may have improperly claimed the credit; the review was ongoing.