Prisoners Cash In On the Homebuyer Tax Credit

At the beginning of the year, the fraud surrounding the homebuyer tax credit program attracted a lot of national attention; the numbers and circumstances connected to these schemes were quite astounding.

Scott Van Voorhis of the Boston Globe wrote that $139 million was wasted on “homes that had not yet been purchased or never were.”

“Hundreds put down the names of children, some as young as four, to claim their $8,000 check.”

Six months ago we asked the following question in reaction to all this documented fraud:

“How many fraudsters have been put behind bars so responsible, honest homeowners can receive their credit in a fair and timely manner — as promised?”

Even though the IRS had 160 investigations going on at the time, reports claimed that only one conviction was made.

According to the latest reports out this week, while the government has been slow to convict tax credit fraudsters, they’ve apparently been quite swift in granting existing prisoners — even many who are serving life sentences — $8,000 each for the homebuyer tax credit!

More than 1,200 prison inmates, including 241 serving life sentences, applied for and received first-time homebuyer tax credits, according to a Treasury Department report released Wednesday.

Treasury said many filed multiple claims, even some outside the allotted time period, and received help from paid preparers. Altogether they fraudulently received $9.1 million in tax credits with $1.7 million going to prison lifers.

Six months ago, honest homebuyers were complaining that it was taking forever for their tax credits to arrive. Why? Due to all this fraud, the IRS changed their requirements (from January 2010):

The IRS’ big new requirement for screening out the fraudsters is for either a signed closing statement or a certificate of occupancy, if it’s a new home. There’s also a new form, 5405. It’s amazing anyone was allowed to claim the credit previously without such basic documentation.

But apparently even doing this kind of bare bones checking will put a big strain on our nation’s tax system. It turns out the IRS won’t be able to start processing any homebuyer tax credits until mid-February.

Given the fact that the IRS’ “screening out” process was ineffective means that honest borrowers will probably have to wait even longer for their checks…unless you’re in jail, then you’ll get your tax credit right away. Bravo.