WASHINGTON -- The Internal Revenue Service has paid out $513 million in home buyer tax credits to people who probably didn't qualify, a government investigator said Friday.
Most of the money -- about $326 million -- went to more than 47,000 taxpayers who didn't qualify as first-time homebuyers because there was evidence that they already had owned homes, said the report by J. Russell George, the Treasury inspector general for tax administration.
Other credits went to prison inmates, taxpayers who bought homes before the credit was enacted and people who did not actually buy homes.
"The IRS has taken positive steps to strengthen controls and help prevent the issuance of inappropriate home buyer credits," George said.
"However, many of the actions occurred after hundreds of thousands of home buyer credits had already been issued, including fraudulent and erroneous credits totaling millions of dollars."
The popular credit provided up to $8,000 to first-time home buyers and up to $6,500 to qualified current owners who bought another home during parts of 2009 and 2010.
IRS spokeswoman Michelle Eldridge said the agency worked hard to enforce a complicated tax credit that provided nearly $29 billion to more than 4 million taxpayers.
The agency audited nearly 448,000 returns and blocked or denied nearly 426,000 questionable claims, she said.
In all, the agency's enforcement efforts saved more than $1.3 billion and identified more than 200 criminal schemes, she said.
"The IRS made the credit available within weeks of enactment, even allowing individuals to claim 2009 home purchases on their 2008 tax returns. Where there are questionable claims, the IRS has moved aggressively," Eldridge said. "The IRS continues to audit claims as warranted, and recapture credits that were improperly paid."
The agency questioned some of the inspector general's findings, but said it would follow up on the report.
The tax credit for first-time home buyers was part of President Barack Obama's economic recovery package enacted in 2009. In November 2009, Congress extended the credit and expanded it to longtime owners who bought new homes.
Home buyers qualifying for the credit had until April 30, 2010, to sign purchase agreements. They had until Sept. 30 to complete their purchases, after Congress extended the deadline.
The popular tax credit helped to stabilize the nation's slumping housing market. But the extensions and expansion of the credit created a complicated system that made it hard for many taxpayers to determine which credit they qualified for, if any.
"The timing and differences in the various legislative provisions also created complexity and confusion for taxpayers and return preparers, as well as the real estate industry," the IRS said in a written response to the audit.
"The IRS addressed this challenge by providing timely, understandable, and extensive outreach and education to the public. Nevertheless, this complexity undoubtedly contributed to numerous errors and erroneous claims."