Letter of Inquiry

[mcb39]

Frantic client comes in with letter from IRS regarding his receipt of credit for first time homebuyer. He already received the $7500 credit (loan) and has spent it. He did qualify for it. We called IRS and lady told me after getting permission from him to talk to me that they are just randomly (or for some other reasons) checking to see if taxpayers really did purchase a home.

Now, I don't find this unusual at all. I thought the form was extremely vague at the time of filing. IRS wants proof of purchase in the form of copies of dated and signed closing papers; including notorized tax transfer statements. I don't find anything wrong with this. I just wonder if some people really tried to claim the credit without actually making the timely purchase. Apparently, the IRS is wondering the same thing. We made copies of all pertinent papers, bundled them up in the envelope that they provided and mailed them back. Extra work for us and unwarranted stress for innocent taxpayers,; but not a surprise when you think about it. :read:

[ILLMAS]

I guess this is a good thing for the IRS to verify if TP really qualifies, now I know one of my client is going to be calling me regarding the same notice. I requested a copy of the closing statement, my client closed on 12/23/08, the only thing my client might not have on hand is a tax transfer, but I will inform them to be ready.

Thanks

[ed_accountant]

This sounds like a lRS letter audit.

[kcjenkins]

It's good to know what they consider 'proof'. I have not had a single one of these, although I do know I will have a couple next year. I think I will ask for those things during the interview, and keep copies in my file.

[Jack from Ohio]

It's good to know what they consider 'proof'. I have not had a single one of these, although I do know I will have a couple next year. I think I will ask for those things during the interview, and keep copies in my file.

That sounds like a good plan to me!! There should be a lot more of those in 2009.

[Eli]

That sounds like a good plan to me!! There should be a lot more of those in 2009.

I hope my area gets saturated with these types of letters. We may be able to break the drought with all the tears that will be shed.

Eli

[joanmcq]

I always ask for a copy of the closing statement if my clients buy a house or refi. look for points, taxes, etc.

[mcb39]

I always do, too. Is especially important now with people paying thousands for PMI. However, I can't keep copies of everything in my files. Luckily, the young man who got the letter came in with ALL of his closing and refinance papers in hand. After talking to the IRS, we just had to make copies, fold and mail. He said, "You will never get all of that in that little envelope that they sent." I said, "Watch me!"

I certainly would never file a claim for a First Time Homebuyers Credit without seeing the closing papers.; no matter who it is.

[David1980]

I just wonder if some people really tried to claim the credit without actually making the timely purchase.

I had several phone inquiries as to whether they can claim the credit for a future home purchase. All but one failed to make appointments/do their taxes with me. My guess is a ton of abuse happened. Just like EIC fraud, a lot of taxpayers probably lied about buying a home and there's probably a handful of preparers who simply prepared fraudulent returns.

[kcjenkins]

If people will 'borrow' kids to get a couple of thousand of bogus EIC money, how much easier to get $8000 just by claiming to buy a house? You can be sure that a bunch of the crooks did that. And some bogus preparers no doubt saw an easy way to make some big money by filing a bogus 5405?

[Margaret CPA in OH]

In my soon to be extended family I think the spirit of the law has been compromised and it annoys me. A couple has been living together since their baby was born last year (not married yet so that state covers child's health insurance). The father's parents bought the house and were renting it to couple both of whom have minimum wage jobs. The parents "sold" the house to these first time homebuyers who promptly went out and bought a 90" flat sceen TV. And I have to be really nice to these folks this Saturday at my son's wedding (the bride's sister is the new mother in this situation). I am somewhat gratified that he sees the issue here, too.

[ILLMAS]

Around the area I reside and work, RE agents are marketing the 8K credit, "Get 8K with the purchase of this home". I just love it when the R/E say "you should of consulted with your accountant first" after the damage is done. They simply wash their hands and now it's your problem.

[grandmabee]

In my soon to be extended family I think the spirit of the law has been compromised and it annoys me. A couple has been living together since their baby was born last year (not married yet so that state covers child's health insurance). The father's parents bought the house and were renting it to couple both of whom have minimum wage jobs. The parents "sold" the house to these first time homebuyers who promptly went out and bought a 90" flat sceen TV. And I have to be really nice to these folks this Saturday at my son's wedding (the bride's sister is the new mother in this situation). I am somewhat gratified that he sees the issue here, too.

But they would not qualify for the first time buyers credit. you can't buy from a related party.

[mcb39]

But they would not qualify for the first time buyers credit. you can't buy from a related party.

I was going to post the very same thing. Making the purchase from a linear relative disqualifies the purchaser from claiming the credit. Lady from the IRS brought that up when we made the call. I have a feeling they will be digging deep into this area..........and sooner rather than later.

[SaraEA]

The TIGTA did an audit recently and discovered a number of "first time" home buyers had claimed mortgage interest and real estate taxes within the last three years. Can't hide from your old tax returns. They strongly suggested the IRS do something about this, and you're seeing their response.

[mcb39]

That is exactly what probably triggered my client's letter. He had paid property taxes on vacant land prior to the purchase of his home and marriage. He had sold the vacant land to his brother. However, the lady that we spoke to at the IRS did say that some of these were being pulled at random.

[Margaret CPA in OH]

The girlfriend bought the property from the boyfriend's parents. She is not related and is a first time buyer.

[kcjenkins]

I wonder if the parents realize that they are going to have to pay tax on their profit, recapturing the depreciation they took while they were 'renting' it?

[Margaret CPA in OH]

I rather doubt they are that sophisticated but I also doubt they made a profit outside the depreciation. Heck, they may not have even been renting at FMV, maybe they were treating it as a second home. I really don't have all the details and would rather not know. I have to spend a couple of hours with the young couple tomorrow evening at the rehearsal dinner and then 6 hours at the wedding Saturday evening. The young woman is the sister of my son's fiance. I do have to watch my tongue and hope the copious quantities of wine I will imbibe do not get me going!

[kcjenkins]

Just tell them right at the start that '"this is a Wedding, I'm not talking any tax today". and then repeat any time anyone tries to get any free tax advice from you.