Home-buyer tax credit hit by potential fraud

By Bob Keefe

The Atlanta Journal-Constitution

The government's tax credit for first-time home buyers has been a boost to the economy.

But it also has attracted a wide range of potential fraud -- from 4-year-olds who claimed they bought a home to people who have owned homes in the past and people who applied for the credit without actually completing the purchase of a home, regulators told a congressional panel Thursday.

"There are possibly hundreds of millions of dollars that have been paid to taxpayers who are not entitled to the credit," Atlanta Democratic U.S. Rep. John Lewis, chairman of the House Ways and Means Oversight Committee, said in prepared remarks. "We want to and we need to stop this fraud and abuse.”

More than 1.1 million people have applied for the $8,000 tax credit since it was expanded in February as part of the government's economic stimulus efforts. Congress is considering extending the program past its current Nov. 30 termination date -- but Lewis and others in Congress have said they're worried about increasing indications of fraud in the program.

Linda Stiff, an Internal Revenue Service deputy commissioner, said her agency has identified more than 160 potential schemes to defraud the program. Additionally, she said, the IRS is investigating more than 100,000 questionable tax returns that claim the credit.

Stiff cautioned that it's not yet clear whether the claims that the IRS is now investigating are illegal claims or simple mistakes.

As Congress is considering extending the program to help prop up the economy -- under a proposal from U.S. Sen. Johnny Isakson of Georgia, it would be extended until June 30 and expanded beyond first-time home buyers and to all home buyers -- Lewis and others on the House panel suggested numerous changes are needed to help prevent fraud.

Despite the flaws, many on the House Ways and Means committee said the program's problems don't outweigh its benefits.

"Anytime you put something out there, you're going to have more crooks than cops," said U.S. Rep. Bob Etheridge, a North Carolina Democrat. "But we should not forget that this has helped millions of people" both directly and indirectly.