The First-Time Homebuyer Tax Credit program may have helped boost the sagging housing market this year, but it also seems to have encouraged a lot of fraudulent activity.

The IRS and a House subcommittee are both planning to investigate the program, which provided a tax credit of up to $8,000 to first-time homebuyers. The program is set to expire on Dec. 1, but various proposals are afoot in Congress to extend and expand it to more types of homeowners. Those efforts could be doomed if reports of rampant fraud prove to be true.

The IRS is reportedly probing more than 100,000 suspicious claims for the credit, including 167 possible criminal schemes, according to The Wall Street Journal. Some of the false claims may have been inadvertent. A report last week by the Treasury Inspector General for Tax Administration found that as of May 29, over 70,000 First-Time Homebuyer Credits totaling over $489 million had been claimed by individuals who did not appear to qualify for the credit (see First-Time Homebuyer Credit Challenged IRS).

While some in Congress, notably Sen. Johnny Isakson, R-Ga., a former real estate executive, are pushing for an extension of the credit, reports of fraudulent activity are pushing others to investigate. Rep. John Lewis, D-Ga., chairman of the House Ways and Means Oversight Subcommittee, said he would hold a hearing Thursday on the administration of the refundable tax credit. “I am pleased that more than 1 million taxpayers claimed the First-Time Homebuyer Tax Credit,” he said in a statement. “However, I am concerned about recent reports that there have been fraudulent schemes involving the credit.”

Like many of the efforts over the years to boost home ownership and help the construction and real estate industries, the program may be a victim of its own success. The National Association of Realtors, the National Association of Home Builders and the Mortgage Bankers Association are asking the Obama administration for a yearlong extension.

No doubt, those industries need a lift from the current economic doldrums, but if the program encourages fraudsters to take advantage of the loose controls that apparently have been allowed to slip into the design of the program, then the administration will need to tighten up the requirements and make sure that the credits go toward real homes and real homeowners.

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