Fixing the federal first-time home buyer tax credit to cut down on the potential for fraud would be a simple thing to do, one local lawyer and title company executive said.
In a recent report and testimony to a congressional committee, officials of the U.S. Treasury Inspector General outlined shortcomings in the safeguards against false claims for the $8,000 tax credit. They included a lack of a requirement for any documentation verifying that the associated home purchase actually had closed.
Questions about fraud came up as federal officials considered expanding and extending the credit.
The report found that more than 19,000 claims worth more than $139.5 million were made on homes that had not yet been purchased -- and that figure was only for electronically filed tax returns.Â
While some of those may not be fraudulent, the report concluded that stricter reporting requirements were needed, such as mandating the submission of a form known as HUD-1 (the U.S. Department of Housing and Urban Development Department's Development Settlement Statement), which is required for all home sale closings.
Tom Richardson, general counsel and CEO of Liberty Title, agreed that the HUD-1 form would be an easy way to address the issue of potential fraud.
"It's a simple fix," he said.
Richardson said he hasn't seen evidence of fraud in any of the transactions he's looked at, but that it wasn't out of the question considering that the credit is refundable.
"Any time you have a refundable credit, people go wild," he said.
As the extension to the tax credit is being considered in Congress, and Richardson said he wouldn't be surprised if the HUD-1 form requirement or an automatic audit trigger for people claiming the credit would be in that bill.
The inspector general report said the Internal Revenue Service had not decided whether to review the 19,000 claims in question. During the 2009 filing season, the IRS implemented a system of controls that flags tax-credit claims with home purchase dates indicated as coming after the date of filing, the report said.
The home building and real estate industries have been pushing for an extension of the tax credit, and recent reports are that an extension is likely.
Richardson estimated the credit has been a part of 20 percent of the transactions Liberty Title has done since it was implemented. He said that rate is higher in places like Jackson County, where home prices are lower and more appealing to first-time buyers.
Freelance reporter Dan Meisler can be reached at danmeisler@gmail.com.
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