How 1,300 prisoners got the home buyer tax credit

First-time home buyers weren't the only ones who collected a tax credit designed to boost the housing market — hundreds of prison inmates may have fraudulently cashed in, too, according to a Treasury Department audit. The tax credits of up to $8,000 helped 2.5 million people buy homes. But the audit uncovered $9.1 million that allegedly went to inmates who almost certainly didn't qualify for the program, which was launched last year and expired in April. "Unfortunately, they have a lot of time on their hands," says J. Russell George, Treasury's inspector general for tax administration, "and so this is how they've elected to use that time." Here's a brief guide to the problem:

How many prisoners have received the tax credit?

Of the 4,608 state and federal inmates who filed for the tax credit, 1,295 received the fraudulent refunds. That includes 241 inmates serving life sentences, to whom the Internal Revenue Service awarded a total of $1.7 million. Of those lifers, 61 percent were from Florida, and 174 filed their claims with the help of paid tax professionals. The IRS says one reason people may have slipped through the cracks is that it doesn't have "reliable, accurate data" on all prisoners, and the agency is asking Congress to pass a fix to help it keep track of taxpayers when they wind up behind bars.

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Were any of the prisoners' claims valid?

Yes, many more prisoners filed perfectly legimate claims for the tax credit. According to IRS spokesman Frank Keith, some prisoners of them purchased a home before their incarceration, while others bought with a spouse who lives in the home and therefore qualifies. "It is possible for an inmate to buy a house while in prison," Florida Department of Corrections spokeswoman Jo Ellyn Rackleff tells CNN. "We have inmates in Florida prisons who still have businesses outside. Many of the inmates have families with children who live outside."

Did the Treasury audit find any other instances of fraud?

Many. The Treasury Department reported "nearly 400,000 questionable home-buyer claims." Of those, 2,555 applicants received a total of $17.6 million for claims made for homes purchased before the tax credit was enacted — including some bought 10 years ago. Another 10,282 people received credits for homes also claimed by other people. In once case, 67 separate claims were made on the same house. More than 206 applicants filed for multiple addresses; they were awarded a total of $1.4 million. And even 34 IRS employees were found to have filed fraudulent claims.

Is there any penalty for filing a false claim?

Yes. Anyone found guilty of making a fraudulent claim of the home-buyer tax credit could face civil penalties as well as criminal prosecution. For example, one Florida taxpayer was sentenced to 30 months in prison for making fraudulent claims.

Sources: CNN, USA Today, MarketWatch, The Atlantic, NPR