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IRS tracking of first-time home buyer tax credits has troubles

Tax credit program mistakes mounting

WASHINGTON — Remember the federal tax credit programs offering $7,500 and later $8,000 to first-time home buyers? More than 4 million people applied for and have received nearly $30 billion worth of credits.

Most of them, according to the IRS, went to people who legitimately qualified. But a series of audits by the Treasury's inspector general for tax administration has documented foul-ups by the IRS, ranging from credits granted to prison inmates and dead people, fraud schemes involving claimants who never bought a house and even credits for alleged home purchases by teenagers and kids as young as 3 years old.

More common, according to auditors, were shortcomings by the IRS in distinguishing between taxpayers who were supposed to repay their credits over a 15-year period — as required under the original $7,500 program in 2008 — and people for whom there was no such requirement under later versions of the program that allowed credits up to $8,000. The agency also had trouble determining whether recipients of the nonrepayable credits might have violated rules by selling their homes before the three years of required residency and earning a profit on the sale.

Now a new audit has turned up still more problems. According to the inspector general, the IRS has been sending "incorrect" notices to thousands of taxpayers that either inform them that they owe no repayments on their credits when they actually do, or demand repayments from recipients who legally owe nothing. The audit also found that an outside vendor — hired by the IRS to help identify credit recipients who may have sold their homes early — used faulty data that led to 53,558 taxpayers receiving notices that erroneously demanded repayments.

The repayment issue — both for people who sell their houses too early or who are supposed to be making annual payments — appears to be an ongoing problem for the IRS. Of particular concern to auditors are the agency's difficulties in keeping track of taxpayers' current addresses and home sales. The unidentified vendor provided "incomplete and/or inaccurate" information in 41 percent of cases in a statistical sampling, triggering incorrect notices to taxpayers, auditors say.

In response to the latest audit, Richard Byrd Jr., the IRS commissioner for wage and investment, cited the multiple legislative versions of the program and its "unprecedented" scope. A subsequent IRS statement noted that the agency proactively has sent out information to households affected by repayment rules and that "despite some data and programming errors" has achieved a "99 percent accuracy rate" in providing correct information. For the upcoming tax filing season, the IRS plans to include a shift to a "web-based tool" that will help people determine if they have a repayment requirement.

Kenneth R. Harney can be reached at

IRS tracking of first-time home buyer tax credits has troubles 11/05/11 [Last modified: Saturday, November 5, 2011 4:30am]
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