IRS paid $513 Million in undeserved home buyer tax credits audit shows.

The Internal Revenue Service has paid out more than a half-billion dollars in homebuyer tax credits to people who probably didn't qualify, a government investigator said today.

Most of the money around $326 million  went to greater than 47,000 taxpayers who didn't qualify as first-time homebuyers because there was evidence they had already owned homes, said the report by J. Russell George, the Treasury inspector general for tax administration. Other credits went to prison inmates, taxpayers who bought homes before the credit was enacted and people who did not actually buy homes.

The popular credit provided up to $8,000 to first-time homebuyers and up to $6,500 to qualified current owners who bought another home during parts of 2009 and 2010.

IRS spokeswoman Michelle Eldridge said the agency worked hard to enforce a complicated tax credit that provided nearly $29 billion to more than 4 million taxpayers. The agency audited nearly 448,000 returns and blocked or denied nearly 426,000 questionable claims, she said.

In all, the agency's enforcement efforts saved more than $1.3 billion and identified more than 200 criminal schemes, she said.

"The timing and differences in the various legislative provisions also created complexity and confusion for taxpayers and return preparers, as well as the real estate industry," the IRS said in a written response to the audit. 

Among the government audit findings of the credit:

• More than 47,500 taxpayers claimed the first-time homebuyer credit even though there was evidence on previous tax returns that they had already owned a home, including deductions for mortgage interest, real estate taxes and mortgage insurance. The report estimated these people claimed $326 million in credits.

• More than 13,400 taxpayers claimed the credit even though they had not yet purchased a home. These people listed future purchase dates on their tax forms. The report estimated these people claimed $97.8 million in credits. The IRS said it believes these estimates are overstated.

• More than 1,000 taxpayers said they purchased homes while they were incarcerated in prison, claiming $7.7 million.

• More than 2,500 taxpayers claimed credits for buying homes for which at least one other taxpayer also claimed the credit for buying. These taxpayers received $11.4 million.

• More than 2,700 taxpayers claimed credits for homes that were purchased before the tax credit went in effect. These taxpayers received $17.6 million.

• The IRS disallowed $531,134 in tax credits claimed by 96 taxpayers who were under age 18, making it unlikely they purchased a home.

See Yahoo News  Stephen Ohlemacher Associated Press