Check out this interesting article about first time homebuyer tax credit fraud! The timing is not good at all, considering the government is reviewing whether or not the credit should be extended! More to come!

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Fraud Taints First-Time Homebuyer Tax Credit, as Extension Gains Ground

Just as the industry steps up efforts to convince Washington to extend the $8,000 federal tax break for first-time homebuyers, news has surfaced that the housing stimulus program could be fraught with fraud.

The Internal Revenue Service says that as of August 2009, 1.4 million taxpayers had taken advantage of the $8,000 homebuyer credit. But according to a new report from the Wall Street Journal, the IRS is currently investigating more than 100,000 suspicious claims, and has identified 167 “criminal schemes” involving the credit.

This morning, U.S. Rep. John Lewis (D-Georgia) announced that the Ways and Means oversight subcommittee, which he chairs, will hold a hearing Thursday to look into accusations involving abuse of the homebuyer tax credit.

“I am concerned about recent reports that there have been fraudulent schemes involving the credit,” Lewis said. “This hearing will allow the subcommittee to hear what, if any, additional steps should be taken to allow the IRS to strike a balance between issuing timely refunds of the homebuyer tax credit and protecting federal revenue.”

Just yesterday, several leading industry organizations made another eleventh-hour plea to prolong the federal tax incentive, which is set to expire on November 30.

The Mortgage Bankers Association (MBA), National Association of Realtors (NAR), and National Association of Home Builders (NAHB) joined forces and submitted a letter to Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan touting the benefits of extending the $8,000 credit for at least another 12 months.

The trade groups also appealed to the two secretaries to support opening up the credit to all homebuyers, not just first-timers; allowing the money to be put towards closing costs; and even increasing the amount of the benefit.

According to NAR, the government’s first-time homebuyer tax credit program has generated an extra 355,000 home sales above what would have occurred in the absence of a credit. NAHB estimates that additional spending by homebuyers, as well as other housing activity stimulated by the tax credit program, has produced 187,000 new jobs.

“Our fragile economy is just beginning to show signs of recovery. We should not jeopardize that recovery by letting this tax credit expire,” the trade groups wrote. “Problems in the housing industry led us into a global recession, and housing incentives can help lead us out,” they stated.

The industry’s petition seems to have fallen on sympathetic ears in the Senate. A long-time proponent of bumping up the amount of the tax credit to $15,000, Sen. Johnny Isakson (R-Georgia) says he has reached a compromise with Senate Banking Committee Chairman Christopher Dodd (D-Connecticut), which would keep the amount of the credit at $8,000 but expand it to include more borrowers, the _Atlanta Journal-Constitution reported Tuesday.

Isakson, who previously spend 33 years in real estate, plans to introduce an amendment to a Senate bill extending unemployment benefits that would remove the first-time buyer requirement from the $8,000 credit; extend the tax credit until June 30, 2010; and raise the income limits to $150,000 for an individual or $300,000 for a couple.

The Joint Committee on Taxation has estimated the cost of Isakson’s amendment to be $16.7 billion over five years. The price tag of the tax incentive has been a growing concern among many lawmakers and critics as the debate over an extension has intensified.

“Expanding the tax credit has a cost, and it is a significant amount of money,” Isakson testified at a Senate subcommittee hearing Tuesday morning. “However, it is less than 3 percent of the amount of the stimulus, and we know from what has happened in the last nine months that the homebuyer tax credit works.”

Taken from: http://www.dsnews.com/articles/fraud-taints-first-time-homebuyer-tax-credit-as-extension-gains-ground-2009-10-20