May 03 2011
Treasury Inspector General for Tax Administration - from Michael R. Phillips - Deputy Inspector General for Audit
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
IMPACT ON TAXPAYERS
Homebuyers who purchased a home in 2008, 2009, or 2010 were able to take advantage of the First-Time Homebuyer Credit (Homebuyer Credit). The Homebuyer Credit allowed eligible taxpayers to claim up to an $8,000 refundable credit on their tax return. Fraudulent and erroneous Homebuyer Credits totaling millions of dollars in refunds were issued, revealing a need for not only stronger controls over claims for the Homebuyer Credit, but also for strengthening controls over all refundable credits.
WHY TIGTA DID THE AUDIT
The President of the United States has called on Federal agencies to ensure that recovery funds are used for authorized purposes and that every step is taken to prevent fraud, waste, error, and abuse. The Internal Revenue Service (IRS) faces significant challenges to ensure that the recovery funds it administers are used for authorized purposes.
This report is the culmination of an audit that was reported in three separate phases as our audit progressed, resulting in two prior interim reports. The overall objective of the review was to determine whether the IRS had controls in place that effectively identified erroneous claims for the Homebuyer Credit.
WHAT TIGTA FOUND
The IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate Homebuyer Credits from being issued. Primary among these controls was the implementation of filters to identify questionable claims for the Credit before they are processed.
Additionally, legislation granted the IRS math error authority to deny Homebuyer Credits if proper documentation was not provided by the taxpayer.
However, the implementation of the filters and passage of this legislation occurred after many Homebuyer Credits had already been issued, including fraudulent and erroneous Credits totaling millions of dollars.
Control weaknesses identified in the two prior reports, as well as those identified in this report, allowed potentially erroneous refunds of more than $513 million to be received by taxpayers who most likely did not qualify for the Homebuyer Credit. Furthermore, during this final phase of the audit, TIGTA identified additional IRS employees who made questionable claims for the Credit.