- Days left

My preschooler is now a homeowner, and other tales of fraud

Homebuyers did not have to truly be first-timers in order to qualify for the "first time homebuyer" tax credit, expiring Nov. 30; they only had to meet the limitation of not having owned a primary residence for the past three years, with income limits of $75,000 for individuals and $150,000 for married taxpayers.

According to the Treasury Department, however, 4-year-olds (and other individuals incapable of legally signing a purchase agreement) don't count.

In an Internal Audit Report meant to assess the 2008 filings in anticipation of a surge in claims for the 2009 tax season, as many as 90,000 claims were determined to be potentially ineligible, and 528 of those were to homebuyers under 18.

The federal tax credit for first-time homebuyers is $8,000.


Out of 1.1 million total claims made by July 17, 2009, this is certainly not an epidemic; but it's a lot of money, as much as $700 million paid out to taxpayers who didn't deserve the credit.

Among the questionable tax credits were those for individuals who hadn't yet closed the sale of their home (more than 19,000) and those who hadn't filed the correct form, or had income in excess of the eligibility requirements.

By far the largest area of potential fraud was predictable: taxpayers who had owned a primary residence in the past three years, 73,799 of 'em. Most of them had claimed mortgage interest, homeowners insurance, or real estate taxes on their past three years' tax filings, and some had even claimed mortgage points, meaning they had purchased a home or had it refinanced within the period.

But most entertaining (and minor in quantity) were the first-time homebuyer credits claimed by children. There were 582 claimants under the age of 18, old enough to pay taxes but not old enough, as the report says dryly, to buy a home.

"Contract law generally exempts children under the age of 18 from being bound by the terms of a contract. Therefore, it is unlikely that these taxpayers would have entered into an arms-length transaction for the purchase of a home," the report states.

The youngest "taxpayers" receiving a tax credit were 4. In other words, more than one family decided to claim a home "purchased" by their preschooler.

Please prosecute these parents.

A footnote to the under-18 section of the report was that 165 of the children who claimed an income tax credit were making in excess of the income requirements, in other words, over $75,000 (I'm just going to assume than none of them were married, even though this may be a bad assumption if their babysitting charges are claiming, too). At least we know they could afford to buy a home!

Though the report is only meant to highlight the automatic screening that should be put into place for the 2009 filing season -- along with a recommendation that the IRS require homeowners to submit proof of the purchase of a home with their return (something that was not required in the 2008 tax season) -- it exposes a subset of taxpayers who are so unethical and, well, ruthless, that they'd eagerly file tax returns claiming a number of lies to reduce their tax exposure.

I'd guess a minority of the 165 taxpayers who claimed a homeowner's credit with income in excess of $75,000 actually earned that money in a job; after all, just how many teenagers are there who make more than an average professional's salary?

As for the normal, law-abiding taxpayer seeking to claim the credit, the new screening recommendations will mean you may be required to submit more documentation. And if you've claimed any homeowner-related tax credits in the past three years, you'll likely be screened out of the system.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

TurboTax Articles

Keeping Yourself Safe From Tax Scams Today

During tax time, there are numerous types of tax scams. These illegal schemes can result in the taxpayer being responsible for extra interest, penalties and possible criminal prosecution. Tax schemes and scams attempt to gain access to your financial information by email, telephone, fax or mail. They also may attempt to falsely collect tax you owe to the Internal Revenue Service. Using TurboTax ensures your financial information remains safe.

Health Care and Your Taxes: What's the Connection?

Your cost for Marketplace health insurance is based on the income you file on your tax return. Your reported income also determines your eligibility for the tax credits and penalties associated with Marketplace health coverage. Everyone has to have health insurance and by filing your taxes, you let the government know if you carry health insurance. The tax system acts as a way for the government to levy a penalty on those who don?t have it and to provide assistance, by means of a tax credit, to those who do.

Documents You Should Save for Tax Time

Settling your account with the Internal Revenue Service each year doesn?t need to be a frantic search for the information you need to file your tax return. Knowing what documents to have at your fingertips can help to reduce filing difficulties and possibly your tax bill.

Do The Math: Understanding Your Tax Refund

For most people, tax is collected by an employer at a rate that estimates your tax for the year. Your actual earnings and the deductions that you?re allowed to claim might cause you to pay too much tax, which leads the Internal Revenue Service to issue you a refund. "The idea behind a tax refund is quite simple," says James Windsor, a certified public accountant from Ann Arbor, Michigan. "When you pay more tax than you owe, the Internal Revenue Service returns the overpayment as your refund."

5 Tax Tips for Single Moms

If you?re a single mom filing your taxes, make use of tax credits and deductions that can help reduce your taxable income and reduce the amount of tax you pay. A number of strategies, credits and deductions can be used to reduce taxable income, and in some cases, allow tax refunds even if you didn?t pay in any taxes. When you use TurboTax, we?ll ask simple questions and handle these calculations for you.

Add a Comment

*0 / 3000 Character Maximum