This is a pretty good Q&A in plain English of some of the provisions in the stimulus package. I am getting a lot of questions about the bill and this is the best information I have about the details at this time.
We have seen several issues related to the new homebuyer’s credit. The first problem that we experienced was legitimate credits denied without further substantial proof being submitted to the IRS. The main reason this happened was due to rampant fraudulent claims. The most recent issue is the systemic failure of the IRS to properly treat the $8,000 credit for those that purchased a home in early 2009. This credit did not have to be repaid but the IRS has many of these in the system as repayable credits.
To get to a basic understanding of what we are now seeing let’s look at the history of the “New Home Buyer’s Credit”.
FIRST: The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyer’s that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year. These were to be claimed on the 2008 tax return.
Second: The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000
for purchases made in 2009 before Dec. 1. The Worker, Homeownership and Business Assistance Act of 2009 extended the deadline — taxpayers who had a binding contract to purchase a home before May 1, 2010, became eligible for the credit. Buyers must have closed on the home before July 1, 2010. That closing deadline was extended to Sept. 30, 2010 by the Homebuyer Assistance and Improvement Act of 2010, enacted July 2, 2010. This credit could be filed in 2008 or 2009 depending on the purchase date.
Problem 1: There was rampant fraud associated with the new homebuyer’s credit. As a result, the IRS tightened up substantially on their screening process and this caught many legitimate credits and delayed them until further documentation could be submitted. Typically we would see new construction, or purchases of homes that the taxpayer had occupied on prior returns under a rental agreement get an extra scrutiny. The IRS would send a laundry list of items they required and often we would have very few of the things they require because local building codes did not require things such occupational licenses.
Soultion 1: You simply have to be diligent, document, and get them the best documentation you can get. Do not rely on any advice provided by the IRS unless they are willing to put it in writing. We have had a great deal of success in resolving these issues.
PROBLEM 2: Credits for 2009 purchases claimed on a 2008 return are in the IRS system to begin repayment with the 2010 filing year. THESE CREDITS DO NOT HAVE TO BE REPAID. Apparently the IRS has a systemic problem (your problem not theirs if you are in this group of taxpayers) that treats all 2008 returns as credits to be repaid and they are sending out notices and refusing 2010 returns that do no include the repayments.
TO MAKE THINGS WORSE: We are getting various erroneous advice from the IRS telephone support about the proper process to correct their error. Answers range from “Amend the 2008 return” to “We have corrected here” (without requesting documentation).
Solution 2: Our best response to date has been to get a human on the phone that will then request the original information to provide proof of purchase date and then that person has made the correction. It takes approximately 2 weeks for the system to update which will allow the taxpayer to file a correct 2010 return excluding repayment of the credit. If you are in this group of people all you can do is take the action to have your credit properly adjusted by the IRS and then wait so that you can submit a correct 2010 tax return that does not begin repayment of the credit.
If you have a first time homebuyer’s credit issue, and need help in resolving your problems, we have been very effective in getting them resolved. So, give us a call and have an advocate go to work on your behalf.
RECORD NUMBER OF AUDITS EXPECTED IN 2004…….. AND IT HAPPENED!!!! AGAIN and AGAIN!!
You May be Next!
Mark W. Everson, IRS Commissioner, stated on November 18, 2004, that audit rates are up for 2004, bringing in a new record of $43.1 billion for Enforcement Revenue. That is an increase of $5.5 billion from last year. The IRS selects returns for audit using several different methods. While the selection criteria used to select returns for audit is top secret, past experience tells us what characteristics will often result in selection. MORE BAD NEWS FOR THE 2006 SEASON! An even higher number of returns were audited in 2005 and the IRS continues to make no bones that the trend is for more audits in the future. For some specific numbers check out this article. Look folks, this makes perfectly good sense as a business matter. The only revenue generating people at the IRS are AUDITORS. My first and best advice is:
Never Go to an Audit Alone!
Of course a great way to avoid an audit is to make sure a qualified preparer handles your tax return. Using T&M means you have a CPA firm handling your return that has extremely few clients suffer the dreaded IRS audit, and we even offer AUDIT PROTECTION to qualified clients, should you run upon such bad luck. Read on, and learn more! I have a Special Report to send you “8 Secrets to Reduce You Chances of Receiving that Dreaded Audit”. To receive you report click here and submit your email address. Don’t worry! We never share you email information with others.
If you can avoid an audit, you should. But, if it happens anyway, you should be prepared. We offer IRS Pass to qualified clients. IRS Pass Silver gives you $2500 coverage for potential taxes, penalties, and fees resulting from an audit. Additionally, we will handle correspondence and documents should you be contacted by the IRS regarding an audit. With IRS Pass Gold, you receive $5000 coverage for potential taxes, penalties, and fees as well as personal representation in the event of an audit so you never have to worry about paying an accountant to accompany you during the audit process. WE GO FOR YOU, not WITH YOU, AS YOUR PERSONAL REPRESENTATIVE. You do not have to worry about what to do and how to work the IRS into your hectic schedule. A CPA will be there for you.
Will You be Alone if You Are Audited?
[ Link to Audit Pass; https://www.tmicpa.com/audit_pass ]
Many taxpayers think their preparer automatically offers free consultation or even representation in the event of an audit. This would be the exception rather than the rule. If you think your CPA offers this service, ask him today. Chances are, you risk a fairly painful expense should the IRS ever decide to look over your returns carefully in an audit. A CPA can make that much less painful and almost always help you avoid potentially damaging mistakes.
Don’t be alone! Call (256) 739-3195 today to see if you qualify for IRS Pass.
Of course there are details regarding the IRS Pass service, and you should understand them completely before using the service. The agreement is less than two pages and you can read it in our offce as well as ask us any questions before you sign up for the service. Make sure you know your options before it’s too late. Come by or call our office today at (256) 739-3195.