New Tax Credit Means New Problems for the IRS

It’s like clockwork: Congress cranks out a new tax credit touted as a fix to an economic problem, but all it does is create problems for the IRS.

In response to the crisis caused by overvalued homes dropping rapidly in value, Congress dreamed up yet another gift to the housing sector. Known as the first-time homebuyer credit, it gives a qualified buyer a big check for buying a qualified house.

After all the newspaper stories about the new credit have been used for fishwrap, nothing remains except the enforcement nightmare. Here’s the Service’s latest warning to taxpayers and their tax preparers. It follows the standard IRS practice: find an egregious violator whose conviction and sentencing is frightening and publicize the case as much as possible, hoping to deter other people from claiming the credit falsely.

Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

Actually, it isn’t just the enforcement that the IRS gets stuck with. They have to advertise the credit, too, spending money promoting something that causes them problems and costs them more money. Check out the poster in English and Spanish.

Thank goodness the credit expires after 2009 (if Congress would only allow it to expire, which they probably won’t).