Treasury Inspector General for Tax Administration
February 29, 2012
TIGTA - 2012-5
Contact: David Barnes
WASHINGTON – The Internal Revenue Service (IRS) disallowed nearly $1.6 billion in erroneous First-Time Homebuyer Credits (Homebuyer Credits) but could have identified even more erroneous claims for the Credit, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
As of July 30, 2011, the IRS had processed more than 4.3 million claims for the Homebuyer Credit totaling almost $30.4 billion. Qualified taxpayers who purchased a home in 2008, 2009, or 2010 were able to take advantage of the Homebuyer Credit and claim up to an $8,000 refundable credit on their tax return. The Homebuyer Credit may be an interest-free loan or a fully refundable Credit depending on when the taxpayer purchased his or her home.
This review was initiated because a September 2009 TIGTA audit found that IRS control weaknesses allowed taxpayers who most likely did not qualify for the Homebuyer Credit to receive potentially erroneous refunds. The objective of TIGTA’s review was to determine whether the IRS was adequately addressing questionable claims for the Homebuyer Credit.
While the IRS completed 495,592 Homebuyer Credit examinations, a large number of high-risk claims were not examined, TIGTA found. Further, many of the examinations conducted were unproductive. More specifically, the IRS never ran some of the high-risk claims through the automated filters designed to select claims for examination. In addition, the IRS methods for determining the highest risk claims were flawed. During the course of the audit, TIGTA made recommendations that resulted in immediate IRS corrective actions. IRS management modified their methods of determining high-risk claims and shifted examination resources to more productive cases.
“The purpose of these examinations is to ensure that only qualified taxpayers receive the Homebuyer Credit,” said J. Russell George, Treasury Inspector General for Administration. “Examining Homebuyer Credit claims that pose the greatest compliance risk is an effective use of limited IRS resources and avoids burdening compliant taxpayers with an examination.” he added.
TIGTA also found that, in some instances, the IRS’s use of post-processing math error authority to disallow Homebuyer Credits that had previously been allowed denied taxpayers of specific rights associated with the IRS’s deficiency processes. The IRS agreed and took steps to address the issue.
In addition, TIGTA recommended that the IRS: 1) use updated examination results to make adjustments throughout the year, which will optimize the overall examination results, and 2) ensure that all claims for the Homebuyer Credit are run against IRS automated examination filters and that the highest risk cases are selected for post-refund examinations.
The IRS agreed with TIGTA’s recommendations and disagreed with one of the outcome measures discussed in the report. However, TIGTA believes that the IRS did not consider pertinent data regarding its high percentage of no-change cases for pre-refund Homebuyer Credit examinations.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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