- 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.

Increase your money and finance knowledge from home

Investing in Real Estate

Learn the basics of investing in real estate.

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

TurboTax Articles

Will Medicare/Medicaid be Impacted by ACA?

The Affordable Care Act put in place significant tax-related programs that impact Medicare and Medicaid, such as increased Medicare taxes on earned and unearned income for high-wage earners, and Medicaid changes that increase the number of insured individuals. Establishing whether you are affected by the ACA-imposed taxes, or are eligible for certain health programs that fall under the Centers for Medicare and Medicaid Services, is determined by filing your income tax.

8 Things You Think Are Tax Deductible That Aren't

There?s a fine line between looking to save money on your taxes and taking deductions that will raise eyebrows at the Internal Revenue Service. Some taxpayers are tripped up by expenses that they assume are tax deductions, but don?t qualify under IRS guidelines. Here are a dozen items that can lead to unpleasant surprises in case of an audit.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

What are 1095 Tax Forms for Health Care?

In 2014 the Affordable Health Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. These forms help determine if you need to comply with the new shared responsibility payment, the fee you might have to pay if you don't have health insurance. For individuals who bought insurance through the health care marketplace, this information will help to determine whether you are able to receive an additional premium tax credit or have to pay some back.

Add a Comment

*0 / 3000 Character Maximum