• By GERARD SHIELDS
• Advocate Washington bureau
• Published: Nov 8, 2009

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A U.S. Treasury Department representative told a U.S. House subcommittee last month that children as young as 4 years old got a first-time homebuyer tax credit from the federal government that failed to adequately monitor the new program.

Congress overwhelmingly voted last week to extend the tax credit of $8,000 but not without safeguards installed by Republican U.S. Rep. Charles Boustany, of Lafayette.

Boustany is the ranking Republican on the U.S. House Ways and Means oversight subcommittee that heard testimony about problems with the program.

“Some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit,” the Treasury’s J. Russell George told the panel.

More than 1.2 million borrowers claimed $8.6 billion in tax credits, George said. Congress allocated $13.6 billion for the program, which was intended to boost a sagging housing market called the worst since the Depression.

Such programs, however, are unfortunately targets for fraud, Boustany said.

“Every time Congress creates a new refundable credit, meaning that individuals can get a check from the federal government whether or not they have tax liability, the incentive for fraud is magnified,” Boustany said at the hearing.

The Internal Revenue Service located nearly 74,000 claims worth $504 million that may have gone to people who were not first-time homebuyers. Almost $4 million in credits went to 582 applicants less than 18 who were ineligible for the program, according to the IRS.

George told the committee that more than one 4-year-old got a credit. The IRS has targeted 160 cases for possible criminal charges. An agency representative said 115 are currently being investigated.

“We are and will continue to vigorously pursue those who filed fraudulent claims for the credit,” Linda Stiff, the IRS deputy commissioner for enforcement, told the subcommittee.

Federal auditors found close to 20,000 taxpayers who claimed $139 million in credits without yet purchasing their homes. Some who filed exceeded the income cutoffs of $75,000 per person and $115,000 per couple.

In the legislation that passed last week, Boustany and the subcommittee chairman Democratic U.S. Rep. John Lewis, of Georgia, added provisions that would require that the mandatory minimum age of filers be 18.

Filers for the credit will also have to attach documents to show their intent to purchase homes. In addition, the IRS will look at previous tax returns to determine whether filers had mortgage deductions.