Despite efforts by the IRS to combat scams, thousands of individuals — including nearly 1,300 prison inmates — have defrauded the government of millions of dollars in home buyer credits, Treasury’s inspector general reported Wednesday.

The home buyer credit provided a federal tax credit of up to $8,000 for first-time home buyers for tax year 2008, the subject of the report. The credit, created to revive the housing market, was later extended to repeat home buyers. The latest credit expired with sale contracts signed as of April 30.  


In response to earlier reports of widespread fraud, the IRS tightened reporting requirements for taxpayers who claimed the credit. But additional controls are needed, the inspector general said. Among the report’s findings:  

•1,295 prisoners, including 241 serving life sentences, received $9.1 million in credits, even though they were incarcerated at the time they reported that they purchased their home. These prisoners didn’t file joint returns, so their claims could not have been the result of purchases made with or by their spouses, the report said.  

•2,555 taxpayers received $17.6 million in credits for homes purchased before the dates allowed by law.  

•10,282 taxpayers received credits for homes that were also used by other taxpayers to claim the credit. In one case, 67 taxpayers used the same home to claim the credit.  

“This is very troubling,” J. Russell George, the Treasury Inspector General for Tax Administration, said. “Congress created and modified the home buyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers.”  

Taxpayers who fraudulently claim the home buyer credit face civil penalties along with criminal prosecution, the IRS said. In October, a Florida tax preparer was sentenced to 30 months in prison for falsely claiming the credit on clients’ tax returns.  

The IRS is moving quickly to block fraudulent claims and recapture credits paid to prisoners, IRS spokesman Frank Keith said. He added that it’s not always easy for the IRS to identify a tax return filed by a prison inmate. Some prisoners use the address of a family member or a post office box, he said.  

And some prisoners have a legitimate reason to file a tax return, Keith added. For example, they may be owed refunds from income earned before they were incarcerated. The IRS is working with state and local governments to obtain information about taxpayers who are incarcerated, Keith said.  

In a statement, Assistant Treasury Secretary Michael Mundaca said the fraudulent claims identified by the inspector general represented less than one-half of 1% of the credits paid out under the program. “As with all new and expanded programs, we are constantly working to improve implementation, and the IRS has already begun to take additional steps to prevent fraud in this program.”