The IRS has paid out almost $10 billion in tax benefits to low- and middle-income Americans who claimed the first-time homebuyer tax credit. At the same time, it has been scrutinizing individual tax returns for errors and fraudulent claims.

Congress enacted the credit in 2008 to spur the housing market. It extended the credit in 2009. For homes purchased in 2008 (after April 8, 2008), the credit in effect provides a $7,500 loan. Although the credit was refundable, it had to be repaid over a 15-year period. However, for homes purchased in 2009 (by November 30), Congress increased the credit to $8,000 and eliminated the repayment requirement. Thus, qualifying taxpayers with little or no tax liability could receive cash for the credit and not have to pay it back. 

The IRS reported in mid-September that 1.4 million taxpayers had claimed the credit, for a total of almost $10 billion. The Treasury Inspector General for Tax Administration (TIGTA) stated that, through May 29, 2009, it had identified more than 70,000 returns, claiming total credits of $489 million, by taxpayers who appeared to be ineligible for the credit. An IRS spokesman confirmed that, as of September 30, 2009, the Service has opened 107,000 civil tax cases involving the credit. 

The IRS Criminal Investigation (CI) Division has been scrutinizing tax credit claims through its questionable refund program. TIGTA, in a March 30, 2009, report, determined that CI had referred 273 cases to IRS auditors involving the credit. As of September 30, 2009, the IRS identified 167 criminal schemes involving the credit.