The Internal Revenue Service disallowed nearly $1.6 billion in erroneous First-Time Homebuyer Tax Credits, but could have flagged even more, according to a new government report.

The report, from the Treasury Inspector General for Tax Administration, found that as of July 30, 2011, the IRS had processed more than 4.3 million claims for the homebuyer credit totaling almost $30.4 billion. Qualified taxpayers who purchased a home in 2008, 2009 or 2010 were able to take advantage of the homebuyer credit and claim up to an $8,000 refundable credit on their tax return. The homebuyer credit can function as an interest-free loan or a fully refundable tax credit, depending on when taxpayers purchased their homes.

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