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Congress Poised to Keep Homebuyers Tax Credit
November 4, 2009
By Jackie Calmes

WASHINGTON — The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.

The Senate might pass its version as early as Wednesday, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law. After weeks of partisan delay in the Senate, Democrats are eager to show progress before Friday, when the October jobless report is again expected to show high unemployment.

The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify.

Extending and expanding the credit would cost an estimated $11 billion, on top of the $10 billion spent so far. It would be a big victory for the housing and real estate lobby and for the Senate majority leader, Harry Reid, Democrat of Nevada, who faces a tough re-election race next year in the state with the most claims for the credit per capita.

Critics complain that most of the credits go to taxpayers who would have bought their homes anyway, which even the industry acknowledges. Also, a Congressional subcommittee released a Treasury Department report last month about suspected criminal and civil abuses of the program.

Government officials testified, however, that many of the problems may be due to confusion among taxpayers and the Internal Revenue Service about the overlapping 2008 and 2009 versions of the tax credit. With Congress likely to change the eligibility provision again, the new measure could present further administrative problems for the I.R.S., although the measure does include several new safeguards.

“It’s not unreasonable to think that this is going to provide some further challenges for them, both in terms of implementing a third version of it and in terms of ensuring taxpayers’ compliance,” said James R. White, director of tax issues for the Government Accountability Office.

The Treasury Department report said that as of Sept. 30, the I.R.S. had identified 167 suspected criminal schemes and was examining nearly 107,000 cases of potential civil violations.

The first person to be convicted of defrauding the tax credit program was a tax preparer in Jacksonville, Fla., who was sentenced last month to 30 months in prison. According to the Justice Department, he claimed the credit for ineligible clients, many of whom were unsuspecting, and electronically paid himself $1,000 of the credit’s value each time.

Investigators found that more than 500 claimants of the tax credit nationwide were minors as young as 4, so the new measure will require applicants to be at least 18. Homes cannot be acquired from relatives, and taxpayers must submit a settlement statement as proof of purchase, though officials acknowledge that could be a problem for those who file tax returns electronically.

While real estate groups and some economists say the credit has helped stabilize the housing market, critics say it is too costly a subsidy when low interest rates and home prices are incentives enough for most.

Of the 1.4 million claimants of the credit, fewer than a third — about 350,000 to 400,000 — are believed to have bought their homes because of the credit, according to independent and industry-affiliated economists.

Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.

The expanded homebuyers’ tax credit was attached to a bill intended to extend unemployment compensation for up to 20 weeks for people who have been out of work for long periods. Another amendment would sweeten a tax break for businesses with net operating losses in 2008 and 2009.