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Despite Problems, Congress Looks to Extend Homebuyer Tax Credit

Evidence of potentially widespread abuse won't deter lawmakers who want to extend a popular tax credit for first-time homebuyers.

The Obama administration, however, raised new concerns Tuesday about the costs.

The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.

Lawmakers said Tuesday they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program beyond the end of November, when it is scheduled to expire.

House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to "find out about how ethically and how honestly this policy is being pursued."

Senate Banking Committee Chairman Chris Dodd said, "We still need to use every tool at our disposal" to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.

For the past several weeks, Obama administration officials have been talking about possibly extending the credit to help spur the economy and create jobs. But at a hearing before Dodd's committee Tuesday, Housing and Urban Development Secretary Shaun Donovan said the administration is not sold on the idea.

"To truly understand the costs, we will not know that until Americans have filed their tax returns," Donovan said. "We believe it's critical to have the information necessary to make a fully informed decision about the costs."

Tax filing season doesn't start until next year. But Donovan said he expects to get cost data in the next few weeks.

"We understand the urgency of this situation," Donovan said.

It would cost about $1 billion a month to extend the existing credit, according to congressional estimates. The bill sponsored by Dodd and Isakson is estimated to cost $16.7 billion.

The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.

About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

"The housing market would not have moved without this tax credit," said Lucien Salvant, spokesman for the National Association of Realtors. "It's a fragile recovery, which is why we think it should be extended."

The IRS began special screening procedures for tax returns claiming the credit after it was enacted, said IRS spokesman Frank Keith. For example, taxpayers who previously claimed the mortgage interest deduction would warrant a second look if they claimed the first-time homebuyers credit, he said.

"We have a number of filters in place that we're using to ensure the claim does not go out to people who are not entitled to it," Keith said. But, he added, "Just because we've opened up a return for examination, we may very well find that many of these are perfectly proper claims."

Keith said IRS officials have talked with lawmakers about finding better ways to run the program. The House Ways and Means Oversight Subcommittee has scheduled a hearing for Thursday on the administration of the tax credit.

"I am pleased that more than one million taxpayers claimed the first-time homebuyer credit," Rep. John Lewis, D-Ga., chairman of the subcommittee said in a statement. "However, I am concerned about recent reports that there have been fraudulent schemes."

Lewis said the hearing will examine whether the IRS needs additional tools to run the program.