First Time Home Buyer Credit - Home Not Owner Occupied

[Crank]

Had a guy call to meet with me about his taxes and review his 2010 because he felt that the previous preparer missed some deductions. What I found out is that he took the first time home buyer credit to buy the house then propmtly rented it out complete with a lease agreement. Well I guess he didnt have enough to itemize so he took the standard deduction plus the extra $1000 increase for property taxes. No Schedule E reporting the rental. He wanted to know what to do.

I said well you should probably speak to an attorney first but I would amend the return with the home buyer credit and repay that, noting that the IRS would probably add interest and penalties and want to know why he took the credit and never lived in the house. His reply was because it was a bad part of town and he didnt want to live there.

I also suggested amending the return to include a Schedule E and report the rental income/expenses for the property. He left saying he would think about it.

This seems like blatant fraud to me but what do I know, I'm not an attorney. Also, I dont believe I am under any obligation to report this guy but I am not sure as I havent researched it.

Also, I told him that the only way I would do his upcoming 2011 taxes was if it included the Schedule E and the past amendments. Since I'm a CPA am I under any obligation to report this to the IRS?

Comments are appreciated.

[Pacun]

No, you are not required to report him. You are just required to let him know of the consequences of his actions.

You don't want him as a client since he went to you thinking that, maybe, the IRS owed him some money.

[rfassett]

You are under no obligation that I know of. Had a similiar situation - well kinda. I prepared the return and took the credit (long time homeowner) with the understanding that the taxpayer was going to occupy the home due to a relocation. Following year the taxpayer shows up and still has the same OLD address and I inquire and she says, "oh, our daughter is living there, that's OK right?" I explained the facts with the statement that if they wanted to continue utilizing my services they needed to do the right thing. I sent them home to comtemplate it and to their credit, they called back within the hour and said they were coming back to fix things - and they did. Your guy? Good luck. But I seriously doubt that you will hear from him again. But if you do, stand your ground - it is the right way, or the highway!