Go to prison and learn a trade - tax fraud. A new TIGTA report is the basis of a CNN Money article highlighting the fraud problem with the First Time Homebuyer's Credit. Anyone who reads this blog much knows how I feel about that credit and it's 3 incarnations. I put a lot of blame on Congress for a questionable credit made worse by changes and extenders. But I have to move some of that ire on to the IRS.
To date, there have been 1.8 million claims paid for a total of $12.6 billion dollars. That averages about $7000 per claim. The IRS/TIGTA have identified 4608 paid claims by people in state or federal prison. The problem is that 1295 of those claims are fraudulent. That's 28.10% The report found that there were serious issues with the Prisoner Database and that those numbers are based on the info they have. The fraud could be higher. In a survey TIGTA did for the report, 87% of the surveyed claims were by inmates who were locked up before 2007; 27.99% had been in jail since before 2000. Over 700 of the fraudulent claims, were paid to lifers. Easy money and what's there worse they can do? Send you to jail?
And taxpayers at large have done their share of blatant fraud. The report found 2751 claims with dates that were before the April 8, 2008 start date. 27% of the claims used dates before 2008. That fraud cost us $18.8 million dollars. Another $1.4 million went to the 206 claims using multiple addresses. These are the ones they're are sure about..so far. According to the TIGTA report they have identified 18,832 claims on 7695 addresses. The worse is 256 of those claims were on 5 addresses.
At issue here is that safeguards/check and balances were not put into place before the first credit was issued. Form 5405 asks for the date of purchase and address of the home. How hard would it have been to add a flag to the date field for out of range dates. (My tax software has it.) Check the address against already paid claims. Nothing was done until it was clear there was a major fraud problem. No documentation, no questions. I can't believe that the issues with the prisoner database weren't know before this, surely there was an easy check here too. I guess the IRS didn't count on taxpayers being dumb enough to put a bad date or use the same address as everyone else. Remember, this is outrageous almost stupid cheating. How much more was done creatively to look valid?
The question is: has the IRS learn not to make the same kind of mistakes going forward? Let's face it, Congress will continue to write badly thought out tax laws. Has the IRS put into place a team that can think about how taxpayers will try to cheat and create checks and balances to catch them. They need to start thinking like a crook now. (Hey, what about the 87 IRS employees who were caught cheating on the FTHC?) Paybacks on the original First Time Homebuyer's Credit begin next year. How is the IRS planning to quickly catch missing repayments? Is there going to be a way for a preparer to check if a new clients has to repay? Or, will we have to wait until the notice months/years later?