Scamming the system for $8,000 tax credits

By Les Christie, staff writer
June 25, 2010: 10:24 AM ET

NEW YORK (CNNMoney.com) — Some homebuyers are angling to claim the $8,000 tax credit even though they missed the deadline.

To claim the credit, buyers had to sign contracts by April 30 and close the sales by June 30. But real estate agents say some buyers are demanding quick closing dates to meet the June 30 deadline, even though they failed to meet the April 30 deadline.

And because the IRS doesn’t require paperwork specifically proving the contract date, they might get away with it.

Can you believe it?  People are claiming a tax credit they aren’t eligible for!  Gee, who saw that one coming?

CNN/Money reported yesterday that people are falsely submitting IRS Form 5405, the First-Time Homebuyer Credit, along with the required settlement statement (which is received at closing, not when the contract is signed).  5405 asks for the purchase date, and specifically whether the buyer was in contract before May 1st, 2010. The settlement statement only has to be signed by all parties if local law requires it, although the IRS suggests that the taxpayer sign it nonetheless.

Good luck figuring out whether you are entitled to claim the $8000.  It appears that a “long-term homeowner” (someone who lived in the same primary residence for 5 of the last 8 years) can also qualify for a $6500 tax credit.  Furthermore, this tax credit isn’t new this year.  What is new is the credit doesn’t have to be paid back over 15 years, as it was in 2008. But the IRS directions are quite clear that the deadlines are April 30th, 2010 for purchase and June 30th, 2010 for closing.

The IRS is keeping mum about how much it knows about this kind of fraud, except to say they have vigorous manual and systemic checks to detect potentially false claims. Anyone who submits fraudulent documentation to support any entries on their tax returns are filing false returns and risk possible civil or criminal penalties.

And even the Treasury Inspector General is keeping quiet, despite releasing a report on Tuesday about other abuses of the homebuyer tax credit – including prisoners claiming the benefits.

Wow, some people have all the luck.  Three squares a day, a roof without a mortgage, and homebuyer credits.  But if the idea of people scamming the US Treasury doesn’t surprise you, have some fun with these scenarios the IRS put together about the First-Time Homebuyer Credit.  Here’s my personal favorite:

S6. I have been estranged from my spouse for over three years and file married filing separate. I don’t know if my spouse has owned a main home in the three-year period, but I did not. If I bought a house in 2009 that otherwise qualifies for the first-time homebuyer credit, can I claim the credit?

A. Section 36(c)(1) requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the three years prior to the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. If your spouse has not owned a main home in the last three years, then you may claim the credit.

Nothing like those zany folks at the IRS expecting you to know what your estranged spouse is up to!