Beware of First-Time Homebuyer’s Credit Fraud

The IRS recently warned taxpayers to be on the lookout for potential fraud involving the first-time homebuyer credit.

In Jacksonville, FL an independent tax preparer recently pled guilty to falsely claiming the first-time homebuyer credit on his clients’ federal tax returns. The tax preparer worked out of his home – not as a member of a reputable tax firm – and has defrauded the IRS of over $216,000. Penalties for incorrectly filing tax returns come with hefty penalties. In this case, that could mean up to three years in jail and/or a fine of as much as $250,000 for the tax preparer. And a lot of headache for his clients.

There are about two dozen open criminal investigations of potential fraud involving this new tax credit. What can you do to protect yourself?

First, educate yourself about who qualifies for the First-Time Homebuyer Credit.  The 2009 tax credit applies to someone who has not owned a primary residence in the last three years, and if the taxpayer is married, the requirement also applies to their spouse. As of right now, the home purchase MUST close before December 1, 2009 in order to qualify. You CANNOT claim this credit on your tax return until after you close on your home!

Tax credits have become increasingly complex in recent years as the tax code is modified. For instance, there are different rules that apply to this credit for homebuyers who purchased a house in 2008. If you’re still uncomfortable about the rules of the tax credit, visit a reputable tax preparer. Tax preparers like Instant Tax Service are staffed by trained tax professionals. Many fly-by-night tax offices may not be as educated about tax code changes, or may simply fudge numbers in order to give clients higher refunds.

In the end, the real victims are the taxpayers who must pay back their hefty refunds to the government – plus any applicable penalties. As a taxpayer, it’s important to protect yourself. Stay educated about tax code changes, and when the time comes to use a tax preparer – choose wisely!