Audit finds home-buyer tax credits pose accuracy challenges for IRS
9/18/2010WASHINGTON - A new audit raises questions about the IRS' ability to handle key basics of the federal home-buyer tax-credit programs, such as determining the year credit claimants purchased their houses, whether they have retained the property as a principal residence, and even if they were alive when a tax credit application was submitted in their name.
The audit by the Treasury Department's inspector general for tax administration praised the IRS for its recent efforts to develop a "comprehensive strategy" to keep track of the credit programs but identified deficiencies in a small but significant number of cases involving claims for credits.
For example, auditors found that the IRS has had trouble distinguishing between houses purchased during 2008 and those bought in 2009.
This can be an important distinction because first-time purchasers in 2008 were limited to tax credits up to $7,500 that must be repaid annually over a 15-year period.
By contrast, purchasers who opted to claim a revised version of the credit during 2009 - for up to $8,000 - were not subject to the repayment requirement.
Out of approximately 1.8 million credit filings during 2009, auditors said they identified 73,119 individual returns from taxpayers who received credits whose account records at the IRS had incorrect - or no - purchase dates:
•59,802 who bought in 2009 were incorrectly recorded by the IRS as having bought during 2008, or no year was identified.
•9,122 who bought their homes during 2008, but for whom the IRS recorded the purchases as occurring in 2009. This could result in potential tax revenue losses to the government of nearly $31 million, auditors estimated, because these individuals might not be asked to repay the credit even though their 2008 purchase date required them to do so.
•4,195 whose claim forms had no purchase date stated or who bought before 2008. "These claims should not have been processed," auditors said.
In addition, a total of 514,987 credit requests gave purchase dates that "cannot be verified" because the data were not "captured" by IRS computers.
The Treasury's inspector general also focused on another set of problems: The IRS' lack of systems to enforce the various repayment provisions in the housing tax credit programs.
The 2009-era credits - up to $8,000 for first-time buyers, up to $6,500 for qualified repeat purchasers - must be repaid if the house is sold within three years of acquisition. The repayment is due on the taxpayer's return filed in the year of the sale.
Auditors said that because the IRS has no systems in place to detect early sales or conversions of properties from principal residences, it must rely on individuals to disclose such information voluntarily. The agency is now developing systems to keep track using third-party sources of real estate and other data, the report said.
Auditors also found the IRS has no system to identify situations that allow certain taxpayers to bypass repayment rules, such as the death of the homeowner, foreclosures with no gain to the taxpayer, and extended overseas assignments of armed forces and other personnel that prevent them from occupying their houses.
Still another deficiency, auditors said, is IRS handling of home-buyer tax credit claims from applicants using the Social Security numbers of dead people. In the 2008 credit program, the audit identified 1,326 individuals who claimed a total of $10.1 million when the home purchase date occurred after the purported claimant's date of death.
In 951 claims, the individual whose Social Security number was used had been dead for at least six months. The IRS denied 528 of the 1,326 total claims - worth about $4 million - but 798 claimants using dead people's Social Security identifications apparently received credits. The IRS has agreed to audit those 798 tax returns, according to the inspector general's report.