GAO: $1 billion in tax credits went to cheats

[Geee]

Washington Times:

Tax cheats were given $1.4 billion in government-backed mortgage loans under President Obama’s economic stimulus, and the government doled out at least an additional $27 million in tax credits to delinquents who took the first-time-homebuyer tax break, according to a government audit released Tuesday.

Under government rules, delinquent taxpayers are supposed to be ineligible for the mortgage insurance program unless they have reached a repayment agreement with the Internal Revenue Service. But the Federal Housing Administration didn’t have the right controls to weed out bad applications, said the Government Accountability Office, Congress‘ chief investigative arm.

That meant FHA insured $1.4 billion in mortgages for 6,327 borrowers who collectively owed $77.6 million in unpaid taxes, or an average of more than $12,000 each.

The auditors said that as a category, the tax cheats had foreclosure rates up to three times as high as other borrowers, which meant the delinquent taxpayers exposed the government to even greater risks.

“In the name of ‘stimulus,’ the federal government gave mortgage insurance to thousands of people we knew were tax cheats and had a bad track record paying their debts,” said Sen. Tom Coburn, Oklahoma Republican, who joined a bipartisan group of other lawmakers to request the investigation. “The federal government needlessly put taxpayers on the line to help tax cheats buy homes. Congress needs to ensure that tax cheats are no longer allowed to take advantage of FHA programs.”

In addition to the mortgages, the auditors found that more than half of the tax-delinquent borrowers claimed the first-time-homebuyers’ credit, worth up to $8,000.

GAO said there is no prohibition against someone claiming the credit, even though they still have unpaid tax bills. The credit is refundable, meaning taxpayers can get a check back from the government if the benefit exceeds their liability. IRS rules generally call for the agency to subtract any unpaid taxes from the refund, but in three of the nine cases that GAO analyzed in depth, it said the taxpayers had declared bankruptcy, meaning the IRS was prevented from docking the refunds.

The report was the GAO’s second study looking at tax cheats and the stimulus.

In the first report, GAO said thousands of contracts and grants were paid out under the American Recovery and Reinvestment Act to those with unpaid tax bills.