Unfortunately for the IRS, hundreds (1,200 to be precise) prison inmates, 241 of which are serving life sentences, cracked the code and cashed in on the IRS' Homebuyer Tax Credit. The total in damages? $9.1 Million in Homebuyer Tax Credits!
A lapse in fraud prevention on the IRS's part allowed prison inmates to apply for and even receive the tax credits. You'd think a penitentiary return address would be an obvious red flag for the IRS, but inspectors found other areas were fraud thrived.
* The IRS allowed multiple claims for the same home.
* Claims totaling an estimated $17.6 million were permitted for homes purchased before the tax credit program began.
* "Questionable" claims by IRS employees themselves.
The report states the IRS is trying to devise a system that would close the loopholes found by the inmates.
"The IRS is running a well-rounded compliance program that has helped protect the interest of the nation's taxpayers," states Richard Byrd, commissioner of the IRS' wage and investment division.
He pointed out that his organization has identified 98 potential criminal schemes, opened 155 criminal investigations, and recommended seven prosecutions. Byrd also says 285,504 claims were denied in upfront processing because they lacked the proper documentation.
In addition, 112,852 refunds totaling $785 million have been frozen pending an investigation and 114,418 post-refund audits have been conducted by the IRS, resulting in a denial of $438 million in claims.
Byrd says the IRS has worked diligently to ensure that the millions of taxpayers who are eligible for the federal tax credit receive it.
In his letter, he noted that through February 2010, over 1.8 million taxpayers received more than $12.6 billion in homebuyer tax credits.
The homebuyer tax stimulus is largely credited with giving a much needed lift to home sales by creating a sense of urgency for potential buyers to move off the sidelines.