Nearly 1,300 prison inmates wrongly received more than $9 million in tax credits for homebuyers despite being locked up when they claimed they bought a home, a government investigator reported Wednesday. The investigator said 241 of the inmates were serving life sentences.
In all, more than 14,100 taxpayers wrongly received at least $26.7 million in tax credits that were meant to boost the nation’s slumping housing markets, said the report by J. Russell George, the Treasury Department’s inspector general for tax administration.
Some taxpayers received the credit for homes purchased before the tax break was started. In other cases, multiple taxpayers improperly used the same home to claim multiple credits. Investigators found one home that was used by 67 taxpayers to claim credits.
“This is very troubling,” George said. “Congress created and modified the homebuyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers.”
The Internal Revenue Service says it is taking steps to get the money back. The agency noted that more than 2.6 million taxpayers claimed the tax credit through April—claiming $18.7 billion in credits—with only a tiny fraction going to prison inmates or other scofflaws.
“A very small number of payments were made to prisoners incorrectly, which the IRS is now taking all steps to recapture and to prevent going forward,” the IRS said in a statement. “The IRS will follow up on every instance of an improper prisoner payment and take swift and appropriate enforcement actions.”
The report blemishes an otherwise popular tax break that was sweetened once by President Barack Obama as part of his economic recovery package and again by Congress when it was extended into this spring. The National Association of Realtors says the tax credit has generated 1 million new home sales that wouldn’t have happened otherwise.
