The tax credit for home buyers is even worse than we thought.
As it turns out, the IRS doesn’t require the people who claim the credit on their tax forms to offer any proof they bought a home.
The IRS doesn’t require documentation to prove the person getting the credit actually bought a home.
Let me repeat that. The IRS isn’t requiring people to prove they bought a house, let alone a “first” home.
We’ve already pointed out that the tax credit is available to people who do not pay any taxes. If your income is so low that you do not have any tax liability, the government will still cut you a check for up to $8,000. For people with low-incomes, it is just a straight subsidy. Welfare for homebuyers.
We’ve also indicated how the tax credit undermines the downpayment requirements for FHA loans. Currently, to get a loan backed by the FHA, a buyer must make a down payment of at least 3.5% of the home price. But since they can then get a check for up to $8,000 from the government, often they can pick up the house without any real investment at all.
The IRS doesn’t have the authority to reject a claim for the tax credit without doing a full audit first.
Of course, this situation is almost certainly leading to massive fraud.
“Just yesterday, a tax preparer in Florida was sentenced to 30 months in prison for illegally claiming the home buyer tax credit. Apparently, he told some of his clients they could qualify if they were ‘merely thinking about buying a house,'” Jagow writes.
Actually, the likely fraud goes much further than this. By enabling people to buy houses with no money down, the IRS is leaving the door wide open for mortgage fraud. Downpayments are a key barrrier to mortgage fraud because fraudsters don’t want to–and often cannot–make upfront payments. But once the downpayment is zeroed out, committing fraud becomes cheap…and rampant.
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