The first-time homebuyer credit is set to expire in several weeks, and there's a push among those in Congress and the housing industry to extend and even expand the generous credit that gives people as much as $8,000 to buy a house.
But no extension should be granted unless Congress and the Internal Revenue Service deal first with issues of fraud surrounding the credit.
The Treasury inspector general for tax administration last week reported that the IRS appears to have allowed tens of thousands of ineligible taxpayers - including some 4-year-olds - to claim millions of dollars in homebuyer credits.
After a congressional hearing on the topic last week, legislation was introduced to curb abuses. That legislation needs to be a priority before Congress decides whether the economy needs this expensive credit to be extended.
February's economic stimulus package expanded a credit created in 2008 to boost home sales. This year's version of the credit gives homebuyers up to $8,000 if they buy their first house this year between January and the end of November.
The terms are liberal and generous. To qualify as a first-timer, you can't have had an ownership interest in a house in the previous three years. The credit is refundable, so if you don't owe taxes, you can get the entire $8,000 as a refund. And you can amend your 2008 return to claim the credit now so you don't have to wait until next year to get the money.
The IRS reported that it has processed more than 1.5 million claims for the credit in the first nine months of this year. Existing home sales are expected to be up 1.5 percent this year, instead of falling 6 percent had the credit not been in place, says Walter Maloney, spokesman for the National Association of Realtors.
Yet the inspector general's office, which provides independent oversight of the IRS, issued a report last week with these disturbing findings:
* More than 19,300 electronically filed returns claimed, and collected, more than $139 million for the credit, although the taxpayers hadn't bought a house yet.
* More than 70,000 claims - worth more than $479 million - came from taxpayers whose earlier tax returns indicate they had already owned a house in the past three years. These filers, for instance, deducted mortgage interest, real estate taxes points and mortgage insurance premiums on recent returns. And more than 12,000 of these returns in recent years had claimed a residential energy credit that's only available for those with a primary residence.
