According to the US General Accountability Office (GAO), the $8,000 first time home buyer tax credit has spawned a lot of tax fraud, and the IRS has identified about 100,000 possibly fraudulent returns. It appears that billions of dollars have gone to taxpayers who weren't eligible to take the credit--and the IRS wants its money back. A spokesperson for the agency stated that it will "vigorously pursue those who filed fraudulent claims." Tax fraud carries penalties ranging from expensive fines to actual jail time with icky criminals and bad food. You don't want to end up there.
Any Person who?? (makes a) Declaration under penalties of perjury - Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; shall be guilty of a felony and, upon conviction thereof;
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Shall be imprisoned not more than 3 years
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Or fined not more than $250,000 for individuals ($500,000 for corporations)
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Or both, together with cost of prosecution
So if you have taken or expect to take the $8,000 credit, make sure that you are entitled to receive this money and file for it correctly to avoid an expensive misunderstanding. Here's what you need to know:
* You can't claim the credit until you have actually closed on your house. Duh. If it's still under construction, you can't claim the credit until after you move in. Treasury Inspector General J. Russell George reported that more than 19,000 people filed 2008 tax returns or amended their 2008 returns claiming the credit to the tune of about $139 million, but they hadn't actually bought the house yet. Are they going to claim lots of exemptions for children they haven't conceived yet as well?
* You have to be old enough to legally sign a contract to buy a house. Parents can't buy a house in their child's name just to get $8,000. Amazingly, there were 580 taxpayers under the age of 18 claiming $4 million in first-time home buyer credits. One was only 4 years old, and somehow I think his parents knew that he couldn't really buy a home--way to go, Mom and Dad! I guess Junior can visit you in jail....
* This is the biggie--you can't have previously owned a primary residence in the last three years, and the IRS definition of "first-time home buyer" is different from HUD's. For example, HUD allows "displaced homemakers" to be classified as first timers but the IRS does not--and the IRS has the last word in this case. How does the IRS discover that you have previous home ownership experience? You probably told it--bydeducting mortgage interest or property tax on previous returns. The revenooers stated that $500 million in claims filed by 74,000 taxpayers may be invalid--there were indications of previous home ownership that would disqualify the taxpayers.
So play by the rules--you probably can't get away with flouting them. By the end of September, the IRS put more than 110,000 refunds on ice until civil or criminal actions have run their course, identified 167 criminal rackets, and started 115 criminal investigations. The agency has changed its software to more easily catch people who have not yet purchased a new home, and it has installed filters to catch those whose previous tax returns indicate home ownership, picking up deductions for mortgage interest or real estate taxes.