NEWEST $8.5 BILLION MILLION BOONDOGGLE-GOVERNMENT INEPTNESS IN PROCESSING HOME-BUYER TAX CREDITS

IRS doled out $620 million to ineligible filers: Auditor
Agency paid home-buyer tax credit to taxpayers as young as 4, report says

Congress mulls whether to extend the popular first-time home-buyer tax credit aimed at shoring up the decimated U.S. housing market, government auditors said Thursday that thousands of ineligible taxpayers have received millions of dollars under the program.

About 19,350 taxpayers claimed $139 million worth of tax credits for homes they had not yet purchased, and about 70,000 taxpayers claimed more than $479 million in credits despite evidence they were not first-time home buyers, according to a report by the Treasury Inspector General for Tax Administration, the agency that monitors the Internal Revenue Service.
Curbing bank pay

Amid public outcry over compensation paid to bank chiefs, the Federal Reserve and U.S. Treasury have unveiled new rules for executive pay. WSJ's Matthew Rose says the move is an historic government intervention in the private sector.

Almost 600 people who claimed about $4 million worth of the credit were not yet 18 years old -- and the youngest taxpayer was 4 years old, the report said.

The tax credit, worth up to $8,000, expires on Nov. 30, though some lawmakers have proposed extending it, and some have said it should be extended and expanded to people beyond just first-time buyers.

Meanwhile, another 48,450 taxpayers who claimed the credit didn't get their full due, likely because they weren't aware they were eligible for up to $8,000 under the revised credit in the American Recovery and Reinvestment Act, versus the $7,500 maximum credit available originally, TIGTA said.

"Based on the administration of the credit to date, I am concerned about the IRS's ability to effectively administer the credits claimed within the original deadline, let alone within an extended deadline for certain taxpayers," said J. Russell George, Treasury Inspector General for Tax Administration, in testimony Thursday to a House Ways and Means subcommittee hearing looking at administration of the tax credit. Read his testimony (PDF).

The TIGTA report pointed to about 90,000 erroneous claims totaling about $622 million. Through Oct. 9, the IRS has processed more than 1.2 million tax returns claiming almost $8.5 billion worth of the credit, according to the report.

Still, some of the erroneous taxpayers' claims may turn out to be correct, George said. For instance, the credit rules prohibit owning a home in the previous three years -- but that means a principal residence. The TIGTA report did not assess whether the evidence of taxpayers' previous home-ownership on earlier tax returns was related to a principal residence or not.

And, the TIGTA report said, the IRS recently put in place strategies to prevent such problems happening in the future. Still, the past problems have yet to be resolved in some cases. For instance, while the law prohibits taxpayers from receiving the credit before they've bought a house, thousands of taxpayers did so before the IRS put controls in place, according to TIGTA.

"Many taxpayers will be identified by recently implemented IRS filters and subject to pre-refund audits; however, TIGTA identified 70,005 taxpayers whose tax returns were processed prior to the implementation of these filters," the report said.

ARE THEY SUPPOSED TO FIRST HAVE THE FILTERS, FIRST?