The U.S. first-time homebuyer credit, aimed at boosting demand amid the recession, is still beset by significant scamming, though authorities made some progress rooting out fraud, a federal watchdog said.

The politically popular program gave qualified buyers in 2008 through 2010 a tax credit equal to about 10 percent of the purchase price, generally limited to $8,000. About 1.8 million taxpayers got $12.6 billion in credits through February of this year.

The Treasury Department's inspector general for tax administration, which has issued a series of reports detailing fraud in the program, on Wednesday found that nearly 15,000 people got erroneous credits totaling about $26.7 million, including 1,295 prisoners getting $9.1 million worth of credits during the 2008 filing season.

The good news is that the IRS (Internal Revenue Service) has made significant strides resolving problems associated with this program. For example, no minors received the Credit, as was identified in the last report, Russell George, the inspector general said.

The bad news is that prisoners are allegedly improperly receiving the Credit for buying homes while they are incarcerated.

The Internal Revenue Service, in its response, said it is aggressively pursing fraudulent claims, including 155 new criminal probes and recommending 7 prosecutions. It also has denied 285,504 claims and frozen funds pending civil exams.

The IRS also said it is working with state and federal officials to address fraud in the prison system. It said congressional action is needed so prisons are required to report the status of inmates to the IRS.

(Editing by Chizu Nomiyama)