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First-Time Homebuyer Tax Credit Ripe for Abuse

The First-Time Homebuyer Tax Credit that was part of the stimulus package may be giving a lift to the housing industry, but it’s also been having the unintended effect of stimulating some dishonest tax preparers and taxpayers to practice tax fraud.

The IRS has been going after such preparers aggressively. Last month, the service announced that a Jacksonville, Fla., tax preparer had pled guilty to falsely claiming the credit on a client’s tax return. The tax preparer now faces up to three years in prison and a $250,000 fine. The IRS said it had at least 24 active investigations open.

Now comes word of another scheme that the feds are investigating in the Albuquerque, N.M., area. A local TV station’s Web site reported on the probe a few days ago. A group of four people may have been responsible for filing tax returns and refund claims adding up to hundreds of thousands of dollars. Those kinds of numbers were bound to attract attention, especially when the homebuyer credit is supposed to be for only $8,000 at the most. One of the alleged fraudsters runs a debt consolidation business and amassed 25 different tax refunds in his account, amounting to almost $175,000. That’s a lot of first-time homes.

The law of unintended consequences seems to be more or less the rule whenever the government tries to hand out money. It may stimulate the economy, but it can also stimulate crooks into hatching new schemes in order to get their hands on it.

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