TIGTA Commends IRS On Home Credit Strategy

by Mike Godfrey, Tax-News.com, Washington

13 September 2010

The United States Internal Revenue Service (IRS) is taking important first steps to identify taxpayers who must repay tax credits for homes they purchased under the First-Time Homebuyer Credit (FTHC) programme, but needs to improve its capabilities, according to an audit report released by the Treasury Inspector General for Tax Administration (TIGTA).

The Housing and Economic Recovery Act of 2008 created an FTHC equal to 10% of the purchase price of a first-time homebuyer's home, limited to a maximum amount of USD7,500, which initially served as an interest-free loan to be repaid over 15 years. Subsequent laws expanded the credit and eliminated the repayment requirement, except in those instances in which the home is sold or is no longer the taxpayer's primary residence within 36 months.

The report found that individuals receiving the credit had incorrect purchase dates recorded on the IRS system which can cause some taxpayers to receive incorrect notices and others to not be identified that are required to repay the credit.

Currently, the IRS does not have the ability to identify individuals who received the FTHC and their purchased homes cease to be their main residences. The IRS is developing a comprehensive strategy to address repayment provisions. The strategy objectives include identifying third-party data sources to ensure individuals are complying with the provisions in the law.

"The IRS is to be commended for its efforts to not only implement but also enforce the laws governing the FTHC programme," said J. Russell George, the Treasury Inspector General for Tax Administration. "Going forward, it is imperative that the IRS ensure the comprehensive strategy being developed identifies taxpayers who erroneously or inappropriately received the credit and are required to repay it."

The TIGTA study also found that an estimated 73,000, or 4.1%, of the approximately 1.77m individuals receiving the FTHC had incorrect purchase dates recorded at the IRS. Of those, 59,800 had purchased their homes in 2009, but the IRS incorrectly recorded the purchases as 2008 or the years were not recorded. These taxpayers could incorrectly receive notices requiring repayment.

IRS officials agreed with the recommendations and stated that they plan to take steps to improve controls.

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