During one of the lowest points in the recent housing market slump, the government designed a tax credit to spark incentive for home purchases. The program offered first time home buyers a tax credit of $8,000 in cash for qualified purchases; and later extended a $6,500 credit to existing homeowners that purchased new homes. The IRS reports that nearly $30 billion in tax credits were claimed under the program. In the midst of a wave of foreclosures and consumer debt struggles, the tax credit program was able to provide a much needed boost to the housing market industry.
Although the program did result in the desired effect a recent IRS audit revealed the IRS may have overspent these credits, providing credits on many unqualified purchases. The audit revealed that the IRS spent millions in refunds that may have not qualified under the tax credit program. More analysis showed that multiple refunds were claimed and granted and there were plenty of claims that were processed for more than one year. Further, many homeowners that had claimed the tax credit refund on their 2009 or 2010 tax return amended their 2008 tax return to also receive tax credits for that year as well.
Many point to the qualification standards as the reason for the mix up. For example, the credits were offered on homes that had gone under contract before April 20,2010 and where the closing papers were finalized before September 30, 2010. With the potential for such a long period between entering into contract on a house and closing on the home purchase, many people claimed the tax credit based on meeting only one of these two criteria. It is said that many people simply did not understand the rules for claiming the tax credit; whereas others believe some intentionally “worked” the system. In either case the IRS assures taxpayers they are taking “a number of positive steps” to resolve the problem. The IRS issued a statement saying, “Where there have been questionable claims, the IRS has moved aggressively, closing almost 450,000 examinations and saving taxpayers more than $1.4 billion,” the statement said. “This includes examination of more than 225,000 amended returns where over $820 million was protected. The IRS continues to audit claims, including amended claims, as warranted and recapture credits that were improperly paid.”