IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud

[Jesse]

Issue Number: IR-2009-69
IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud
IR-2009-69, July 29, 2009

WASHINGTON — The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

[AuditorTurnedGood]

Is anyone here suprised by this? I do, however, wonder about the claim of them having "sophisticated computer screening tools" to detect fraud, since primary home ownership is tough to tell off of reported information. I would imagine they are casting a wide net.

[Snaggletoof]

What about the Taxpayer?

This post is to shed light on an alarming trend.

We read the press on Jesse's post. All about FTHB credit fraud and going after the tax preparer who perpetrated the fraud.

Not a single word about going after the $8000 that the taxpayer received. What happened to him (her)?

The dubious "sophisticated screening methods" that are used to detect this kind of fraud? (like ATG, I sorta doubt it). Are preparers supposed to know that a taxpayer is fraudulently wanting to claim the credit? Are these "sophisticated screening methods" available to us? I believe their claim to these methods sounds good on a press release in order to place fear in the minds of the public.

I didn't see anything in this press release about how the preparer actually knew that the taxpayer was committing a fraud. That information would have been helpful.

The trend of which I speak is forcing tax preparers to be auditors.

[Jesse]

Is anyone here suprised by this?

Not in the least!

This post is to shed light on an alarming trend.

The trend of which I speak is forcing tax preparers to be auditors.

My exact thoughts, the punish the preparer mentality is becoming so frustrating.

[AuditorTurnedGood]

I think it would just be easier to make us all auditors and get it over with. Or go back to the old fashioned way of doing it when the IRS would prep your return for free at the service center, Circa 1950.

[DaveO]

Not in the least surprised.

So far I've only prepared this for people well known to me or the children of current clients. I guess when a new one pops in I'll have to investigate it closely.

[luke]

fraud

It is no surprise to me that there WILL be fraud associated with this FTHB credit - after all look at EIC and the maximum amounts were only $3K - $4K, not $8000!

[JohnH]

I think the form should have at the very least required a checkoff of some basic questions, such as whether you've owned a home in the past 3 years, whether you bought from a relative, do you understand the payback provisions (for the $7,500 credit), do you understand the ownership & residency requirements, and a few others.

After all, IRS asks all these sorts of questions when someone claims auto mileage so it isn't as though they don't know how to do it. And there's plenty of blank space on the form. There should also be a jurat on the form, with a signing requirement separate and in addition to the main return. None of this would prevent abuse, but it would help clarify things and make a few people a little less tempted to commit fraud.

That isn't too much to ask someone who is requesting a $7,500 - $8,000 handout. Maybe the form should also suggest that they sign a "Thank You" note to their fellow taxpayers for the gift.

[MLINDER42]

First Time Home Buyers Credit

The first person caught for fraud was a preparer not a client.The preparer made up the scheme.Another reason for having some sort of licensing for tax preparers.

[David1980]

Unfortunately when anyone can be a preparer this kind of thing will always happen. They can catch some of them, but there's always someone willing to take their place.

But I don't put the blame solely on the preparer when they do such blatant fraud. The taxpayer needs to sign off on that return, and when flipping through the tax return and seeing a form titled "first-time homebuyer credit" they should be aware enough to ask questions, that combined with the extra $8,000 refund.

Then again, why ask questions when you're getting so much money? And that's the reason people not only are willing to have their return prepared by unscrupulous preparers, but actually seek them out. If one preparer tells them they don't qualify for some free money credit they just take their papers and go to one who does. And when they find one willing to take a bad deduction they'll tell their friends. Just like those that self-preparer with DIY software and lie to all the questions til the refund gets as big as they can make it.