Fraud found in homebuyer credit

WASHINGTON — The rush to implement a tax credit for first-time homebuyers opened the program up to potential fraud by people who hadn't bought a home or already owned one, Congress was told Thursday.

J. Russell George, Treasury Inspector General for Tax Administration, questioned the eligibility of about 100,000 claims out of the 1.5 million who have sought to take advantage of the $8,000 tax credit incorporated in the economic stimulus package enacted in February.

He said claimants include those who could be illegal immigrants and that 580 people seeking $4 million from the first-time homebuyer credit were under the age of 18. The youngest taxpayers receiving the credit were 4 years old, his office said.

George and an Internal Revenue Service official testifying before a House Ways and Means Committee subcommittee stressed that many of the questioned claims may eventually be found to be legitimate after further examination.

But the hearing raised a yellow flag as Congress considers whether to extend, or even expand, the popular program that is set to expire at the end of November.

The top Republican on the panel, Rep. Charles Boustany Jr., of Louisiana, said that while the issue of extending the credit was not the purpose of the hearing, "every time Congress creates a new refundable credit... the incentive for fraud is magnified."

Linda Stiff, IRS's deputy commissioner for services and enforcement, agreed that "any time that there is an opportunity to receive cash back, it tends to attract people that might have an intent to defraud the government." She said the agency "will vigorously pursue those who filed fraudulent claims."

Rep. John Lewis, D-Ga., chairman of the oversight subcommittee, said he had introduced legislation to improve the IRS's administration of the program, including giving it the authority to look at prior returns to determine eligibility and requiring that taxpayers provide documented proof of a home purchase.

Currently, applicants must fill out a separate IRS form but do not have to supply documentation.