First it was minors and resident aliens. Now the Treasury Department's independent watchdog is alleging that $9.1m in homebuyer tax credits went to 1,295 prisoners who were incarcerated at the time they allegedly purchased homes. The Treasury Inspector General for Tax Administration (TIGTA) released its latest interim audit (download here) on Internal Revenue Service (IRS) efforts to identify and prevent fraudulent homebuyer tax credits. All told, TIGTA's investigation estimates the IRS paid out $26.7m in erroneous credits, less than 1% of the estimated $13.6bn in homebuyer tax credits claimed. Of the approximately 1.2m individuals who claimed the credit, TIGTA estimates 14,132 -- about 1.1% -- are erroneous or fraudulent claims. "This is very troubling," TIGTA head J. Russell George said in a press statement. "Congress created and modified the homebuyer credit to stimulate the economy and help taxpayers achieve the American Dream, not to line the pockets of wrongdoers." The audit found the number of tax credits claimed exceeded the number of houses allegedly purchased. The audit of 18,832 people that filed for the credit used only 7,695 household addresses. In one instance, 67 individuals used the same house to claim the credit. "The good news is that the IRS has made significant strides resolving problems associated with this program," George said. "For example, no minors received the credit, according to our report. However, the bad news is that prisoners are allegedly improperly receiving the credit for buying homes while they are incarcerated." In addition to the claims made by prisoners, TIGTA found 87 IRS employees that filed a claim for the tax credit, despite indications that they owned a home within the past three years, making them ineligible for the first-time buyer credit of $8,000. The report also alleges 2,555 taxpayers received inappropriate tax credits totaling $17.6m for home purchases made prior to the dates allowed by the law. The report follows a September interim audit that showed the IRS erroneously paid nearly $4m in homebuyer tax credits on claims by 580 taxpayers less than 18 years old. The youngest of these was 4 years old. That report also found 3,200 resident aliens ineligible for the credit received $20.8m in tax credits. "While the IRS has taken a number of positive steps to strengthen controls and help prevent inappropriate credits from being issued, our audit found that additional controls are necessary to address erroneous claims for the Credit," George said. TIGTA will release its final report on the tax credit in Q410. Write to Austin Kilgore.