FRAUD IN THE HOMEBUYER CREDIT - SURPRISE!!

J. Russell George


The Treasury Inspector General for Tax Administration said in the report that errors and fraud are continuing to plague the First-Time Homebuyer Tax Credit program, despite efforts to curtail previously identified problems. In addition, TIGTA estimates that 14,132 individuals received erroneous credits totaling at least $26.7 million, including 2,555 taxpayers who received inappropriate homebuyer credits totaling $17.6 million for home purchases made prior to the dates allowed by the law. Over 80 of the improper credits were claimed by IRS employees.

The report found that $9.1 million went to 1,295 prisoners who were incarcerated at the time they reported that they purchased their home. These prisoners did not file joint returns, so their claims could not have been the result of purchases made with or by their spouses. Further, TIGTA found that 241 prisoners were serving life sentences at the time they claimed that they bought new primary residences.

“This is very troubling,” said TIGTA Inspector General J. Russell George. “Congress created and modified the Homebuyer Credit to stimulate the economy and help taxpayers achieve the American Dream, not to line the pockets of wrongdoers.”

The IRS said it would take action to recapture the payments to prisoners. "In swiftly making the First Time Homebuyer Credit immediately available to more than 2.6 million homebuyers, a very small number of payments were made to prisoners incorrectly, which the IRS is now taking all steps to recapture and to prevent going forward," said the IRS in a statement.. "The IRS will follow up on every instance of an improper prisoner payment and take swift and appropriate enforcement actions."

The IRS noted that it does not have access to reliable, accurate data on all prisoners and wants Congress to enact legislation that would give it data on all federal, state and local prisoners.

TIGTA acknowledged that the IRS had curbed some abuses of the tax credit.

“The good news is that the IRS has made significant strides resolving problems associated with this program,” said George. “For example, no minors received the credit, according to our report. However, the bad news is that prisoners are allegedly improperly receiving the credit for buying homes while they are incarcerated. While the IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate credits from being issued, our audit found that additional controls are necessary to address erroneous claims for the credit.”

Congress passed a series of legislative provisions that enabled first-time homebuyers to claim a refundable credit on their 2008, 2009 or 2010 individual federal tax returns. The credit is equal to 10 percent of the purchase price of the home, limited in most cases to $8,000. Initially, the credit served as an interest-free loan of up to $7,500 to be paid back over a 15-year period. However, subsequent legislation excluded the pay-back requirement. According to the IRS, 1.8 million taxpayers received $12.6 billion in Homebuyer Credits through the end of February 2010.

TIGTA issued an earlier report in September 2009 that found fraudulent claims for the tax credit, including by minors (see Audit Finds $636M in Bogus Homebuyer Tax Credits). While the IRS has taken steps to improve its oversight of the program since the earlier report, TIGTA’s new report found a significant amount of fraudulent and erroneous payments in the First-Time Homebuyer Credit Program.

In its new report, TIGTA found that 10,282 taxpayers received credits for homes that were also used by other taxpayers to claim the credit. In one case, TIGTA found that 67 taxpayers were using the same home to claim the credit. TIGTA auditors have not fully quantified the total of these erroneous credits, but all indications are that the total will be in the tens of millions of dollars.

Some of the improper payments involve IRS employees, TIGTA found. At least 34 IRS employees claimed the credit despite indications that they owned a home within the past three years. This is in addition to the 53 IRS employees that TIGTA identified in August 2009. TIGTA’s Office of Investigations continues to investigate all of these cases.

At least one lawmaker reacted with outrage to the report. “Last year, we learned that children and persons who did not purchase homes were fraudulently claiming the First-Time Homebuyer Credit,” said Rep. John Lewis, D-Ga., chairman of the House Ways and Means Oversight Subcommittee. “In response, we provided additional authority to the IRS to administer the program. Although I am pleased that the fraud identified earlier does not continue, I am concerned about prisoners claiming the credit. I am also disturbed by 67 people claiming the credit for a single address and millions of dollars claimed by people who purchased homes before the program started. The report highlights the need to remain vigilant in this area. We are committed to working with the IRS and TIGTA to address and eliminate fraud with respect to all federal tax provisions."

TIGTA recommended that the IRS conduct an analysis to identify multiple taxpayers claiming the same home for the credit and perform post-refund examinations to ensure that refunds for the invalid claims are recovered, and identify claims for homes purchased prior to the effective date of the legislation. In addition, TIGTA recommended that the IRS increase its scrutiny of questionable claims for the Homebuyer Credit on amended tax returns and improve the collection of data on the national prisoner population. The IRS agreed with the recommendations.

Maybe We SHOULDN'T Boycott BP Gas Stations!

Protests and boycotts of the BP brand generated by the Gulf spill aren't likely to have a big immediate impact on BP PLC, but could threaten the thousands of entrepreneurs who have staked their livelihoods on the company's name.


Nearly all the 10,000 service stations around the U.S. flying the BP flag are owned by independent dealers that are obligated under long-term contracts to sell BP-branded fuel. Some worry that mounting anger over the spill's environmental and economic toll could turn the once-highly coveted brand into a liability.

But the actual gasoline the stations sell is a mixture of fuel from multiple refiners or importers, so the direct impact of any slowdown at BP-branded stations is minimal for the oil giant, which can sell excess supplies as private-label fuels to other retailers. Maintaining a brand presence is important to BP, but the marketing segment only represents a sliver of profit for the company.

BP stations in Florida immediately saw consumers turning away after the leak began in late April. Total sales at BP stations there declined 8%-10% in May compared with last year, while competitors benefited from additional traffic, said Jim Smith, president of the Florida Petroleum Marketers and Convenience Stores Association. The magnitude of the sales declines "means that we are going to have a lot of small business owners going out of business," he said.

Hundreds of Facebook pages and Twitter accounts have sprung up dedicated to the spill coverage, and some have organized protests. Some BP station owners are hearing complaints from customers about the spill or motorists yelling as they drive by. But station owners and independent distributors, who bring fuel to the stations, say it is more difficult to quantify the silent protesters who simply drive to other stations to fill up.

"People are kind of melting away," said Jay Ricker, chairman of Ricker Oil, noting that same-store sales across the company's 35 BP stations in Indiana fell 5.4% last week, the first decline seen this year.

Independent fuel distributors, known in the industry as jobbers, are worried about the reduced demand for BP-branded fuel. Station owners are concerned that a drop in motorists filling up their tanks will clip purchases for items such as chips and sodas at attached convenience stores, which account for less than a third of sales but two-thirds of profits.

"The distributor and retailer communities have really become the lightning rod of the consumer backlash, easy targets," said John Phelps, president of Carroll Independent Fuel Co., which supplies 110 BP stores in the Baltimore area. Carroll acquired most of them in the past five years in an effort to bank on BP's strong brand name and its push toward an environmentally friendly image, he said.

Some BP-branded fuel retailers say there has been a noticeable change in consumers' attitudes since the start of June, when images of oil-blackened wildlife and tar balls on beaches heightened the public's anger about the spill.

"It really coincided with the oil coming ashore," said Jeff Miller, president of Miller Oil Co., a family-owned distributor based in Virginia Beach, Va., that supplies about 50 million gallons of BP gasoline annually and owns 16 stations. He has seen gasoline sales fall 2%-3% this month at four BP stations in tourist areas.

BP employees are working with local fuel retailers to launch grass-roots marketing campaigns and are visiting sites to talk to concerned consumers, said John Kleine, executive director of the BP Amoco Marketers Association, an independent organization representing independent distributors. The company's support includes full reimbursement for advertising costs normally split with jobbers. The money frequently goes to on-site promotions at service stations.

"BP looks at what they are doing now as a long-term investment for the brand and knowing that investment will play out over time if you are doing the right thing," Mr. Kleine said.

So far, jobbers and retail stations are largely sticking with BP rather than switching to other brand names, which could require buying out expensive contracts, said Dan Gilligan, president of the Petroleum Marketers Association of America, an industry group.

Write to Naureen S. Malik at naureen.malik@wsj.com

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

Money runs out for small business loan breaks

NEW YORK (CNNMoney.com) -- In the middle of the federal government's National Small Business Week, two of the most successful Small Business Administration programs are about to run out of money -- again.


The SBA announced Wednesday that it is opening up its Recovery Loan Queue for the fourth time.



For more than a year, the SBA has used money first allocated in last year's Recovery Act to temporarily reduce fees for borrowers and increase the guarantees banks receive on loans made through the agency's lending programs. The SBA's loan volume has picked up sharply in that time, a turnaround agency officials attribute to the stimulus incentives.

But the funding for them ran out in November. Since then, the agency has relied on a series of temporary extensions to keep the loan sweeteners in place. Every time the money runs out, the SBA opens up its Recovery Loan Queue to track applicants hoping to collect the last few remaining dollars.

The latest authorization for some of the loan incentives expires at the end of this month, and the money for them is likely to be exhausted even sooner.

President Obama and many in Congress say they want the loan incentives extended for at least the rest of this fiscal year, which runs through September. But the two chambers of Congress haven't yet agreed on legislation to do that. Result: A series of emergency bills that so far have kept the funds flowing, but only after several brief expirations.

"The stopping-and-starting is problematic," said SBA spokesman Jonathan Swain. "It is a complicating factor for our lenders and our borrowers."

When the funding pool starts to go dry, lenders scramble. Seacoast Commerce Bank, a community bank in Chula Vista, Calif., had pushed five SBA-backed loans through by midday Wednesday.

"It certainly puts a lot of strain on the whole process," said David Bartram, an executive vice president in the bank's SBA division.

It also throws borrowers into limbo. Losing the SBA's fee waiver can make a loan thousands of dollars more expensive for the borrower -- and there are some loans banks are only willing to make if they can get the higher SBA guarantee. Without it, those loans become too risky.

"There are some customers that we are not going to be able to help," Bartram said.

Members of both the House of Representatives and the Senate are pushing for another extension, but it's unclear whether legislation can make it through before the Memorial Day break.

"Nothing gets through Congress easily these days, even bipartisan legislation," said Lynn Ozer, executive vice president of government lending at Susquehanna Bank.

SBA lending is one of the few bright spots in an otherwise barren credit landscape, but it's still a small part. A recent government report estimated that SBA programs account for just 4% of all small business lending.

President Obama this week renewed his push for a new, $30 billion loan fund to seed small banks with capital to boost their local business lending. In a report issued Tuesday, the Congressional Budget Office estimated that the measure would cost the government $3.3 billion over the next five years.