The IRS has an urgent message for would-be home purchasers: Make the most of the $8,000 first-time-buyer tax credit before it disappears Dec. 1 — if you qualify.
But if you don’t truly qualify, don’t try to play games with the credit. The IRS already has 24 criminal investigations of suspected fraud underway around the country. It has executed seven search warrants, and last month a tax preparer in Florida entered a guilty plea on federal charges of fraud in connection with the first-time-buyer credit. He’s awaiting sentencing and faces up to three years in prison, a $250,000 fine or both.
Congress’s two versions of the first-time-buyer credit — a repayable $7,500 credit in 2008, and this year’s more generous $8,000 credit that does not have to be repaid — have stimulated home sales nationwide. But they’ve also become irresistible temptations for dishonest taxpayers to cash in and claim bogus refunds.
Claiming the credit looks so easy: You just fill out IRS form 5405, list the address of the house you bought, mail it in and wait a month or two for your money. Who’s going to check on whether you really qualify under the definition of first-time buyer — someone who hasn’t owned a principal residence in the previous three years — and that you’re eligible on income and other factors?
With thousands of people buying houses and claiming tax credits, who’s going to be able to check all those filings? The answer from the IRS: We are. The agency said it uses “sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.”
The IRS won’t discuss the nature of its screening, but it’s clear from the number of ongoing investigations that claims for the credit are getting special scrutiny.
According to a summary of the facts agreed to by Price as part of his plea agreement, he admitted that in February he met with a client who told Price that she didn’t want to buy a house. But Price insisted that she qualified for the credit because “she had two jobs.” He then wrote in a house address on the form 5405, claiming the client closed on the purchase Jan. 5. When she received her $7,500 credit, Price took $1,000 of it for himself.
In the plea agreement, Price admitted following a similar pattern in 14 other tax returns.
IRS spokesman Terry Lemons declined to discuss the ongoing criminal investigations of taxpayers claiming the home-buyer credit. He said the investigations involve individuals as well as tax-return preparers.
The IRS doesn’t “want to discourage people from taking advantage of the credit,” Lemons said, but it wants them to be certain that they’ve read through the eligibility rules so they don’t end up with audits, back taxes and late penalties. On the list of things that can disqualify buyers:
– Purchasing your house from a “related person.” That’s a broad category of people and entities, ranging from immediate family members — a spouse, parents, children, grandparents, grandchildren — to a corporation or partnership in which you have more than a 50 percent ownership stake.
– Buying a home with a spouse who is ineligible, even if you are eligible individually.
– Acquiring a house through an inheritance or gift.
– Financing the house through a tax-exempt mortgage bond program.
– Making too much money — in excess of $95,000 of modified adjusted gross income for singles, $170,000 or more for married joint filers.
What are the downsides if you claim the credit erroneously and do not intentionally defraud the government? If you are audited, the IRS most likely will ask for the full credit amount back, plus interest and a late-payment penalty.
Bottom line: Don’t let this year’s tax credit pass you by if you meet the criteria. And if you don’t, beware of slick-talking professional tax preparers who tell you that you do.
Sonny: Get this over with, Mush.
daily that REALISTICALLY expected rates to go down to the high 3′s because the media puts their dirty little paws on it, and in the end, they lose out on something great.
At first, I thought it was just another “mortgage scam”. Trust you me, the real mortgage industry always leaves room for the next “million-dollar-idea”. If you pay close attention, you may even end up seeing your next door neighbor on the 6 o’clock news getting caught for selling “ARMS” from the back of his van in a dark alley.
