Treasury Inspector General for Tax Administration
Office of Audit†††††††††††††††††††††††††††††††††††† Recovery Act
Control Weaknesses Over Amended Returns Allowed Some Inappropriate Claims for the First-Time Homebuyer Credit to Be Allowed
Issued on June 24, 2011
Highlights of Report Number: †2011-41-057 to the Internal Revenue Service Commissioner for the Wage and Investment Division.
†IMPACT ON TAXPAYERS
Homebuyers who purchased a home in 2008, 2009, or 2010 may be able to take advantage of the First-Time Homebuyer Credit (Homebuyer Credit).† The Homebuyer Credit may be an interest-free loan or a fully refundable Credit depending on when the taxpayer purchased his or her home.† Questionable Homebuyer Credits totaling millions of dollars in refunds as well as additional interest amounts were issued on amended claims.†
WHY TIGTA DID THE AUDIT
The Homebuyer Credit as expressed in the Housing and Economic Recovery Act of 2008 has been revised and extended by three subsequent bills.† Taxpayers may be confused regarding which version of the Homebuyer Credit they qualify for and specifics on how to claim the Credit.† Also, unscrupulous individuals may make fraudulent claims for the refundable Homebuyer Credit.†
The President of the
WHAT TIGTA FOUND
The IRS has taken a number of positive steps to process Homebuyer Credits claimed on amended returns.†
Primary among these was development of criteria to identify amended returns with questionable claims before they are processed.† However, additional issues need to be addressed for claims of the Homebuyer Credit on amended returns.†
Taxpayers inappropriately changed their home acquisition date to avoid repayment of their Homebuyer Credits.† Some taxpayers received multiple refunds of the Homebuyer Credit.† Many questionable claims for the Homebuyer Credit were not appropriately sent to the IRSís Examination function for scrutiny.†
TIGTA also found that the IRS paid an estimated $37 million in interest on claims for the time period prior to actual home purchase dates.† It is unclear whether Congress intended for this interest to be paid.† Finally, some claims for the Homebuyer Credit were significantly delayed.†
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS ensure that taxpayers changing the year of purchase or receiving more Homebuyer Credit than they are entitled to are identified and invalid claims are recovered through examinations.† The IRS should also ensure that employees are provided proper training and perform quality reviews of Homebuyer Credit claims.† The IRS should identify interest-related issues on any future legislation and work with the Department of the Treasuryís Office of Tax Policy to request clarification from Congress if warranted.† Further, the IRS should ensure that timeliness standards are adhered to when cases are referred to the Examination function.
IRS management agreed with our recommendations and has initiated appropriate corrective actions.
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to: †
Email Address: ††TIGTACommunications@tigta.treas.gov
Phone Number:†† 202-622-6500
Web Site:†† http://www.tigta.gov