An investigation by the Treasury Department’s Inspector General for Tax Administration has found that even though they were not old enough to buy a house, more than 580 children younger than 18 have claimed almost $4 million and received $627,000 in first-time homebuyer credits. Some were as young as four years old.
“Contract law generally exempts children under the age of 18 from being bound by the terms of a contract. Therefore, it is unlikely that these taxpayers would have entered into an arm’s-length transaction for the purchase of a home,” testified J. Russell George, Treasury Inspector General for Tax Administration, before a House Ways and Means Subcommittee this morning.
Even though they were too young to buy a home, the IRS failed to detect the fact that children were applying for the tax credit with as much as $8,000 because the agency had failed to screen applications for age.
However, George said 165 of the more than 580 children claiming the credit did not meet the IRS’s adjusted gross income screening criteria. In 64 of these cases, other IRS filters flagged the claim for further scrutiny. However, 101 of the claims for the first-time homebuyer credit made by children under the age of 18 were not screened out by the IRS screening criteria. The total amount of these credits was almost $627,000.
As of September 30, the IRS had identified 167 suspected criminal schemes and opened nearly 107,000 examinations of potential civil violations of the first-time homebuyer tax credit.
George also identified more than 19,300 electronically filed 2008 tax returns on which taxpayers claimed the credit for a home which had not yet been purchased, but allegedly would be in the future. The amount of the credits inappropriately claimed via e-filing totaled more than $139 million.
In February, Congress allocated $13.6 billion for the credit, which expires December 1, but the Joint Committee on Taxation estimates that it will cost $4.3 billion more. As of October 9, 2009, more than 1.2 million tax returns claiming almost $8.5 billion in credits had been processed by the IRS.
As its expiration nears, supporters of the credit have been pushing to extend it. The Obama Administration, Senate Majority Leader Reid, Senate Banking Chairman Dodd and other Congressional leaders support a six month extension of the credit.