1.4 Million Families Have Filed for First-Time Homebuyer Credit
Posted by accountingweb on 1245
Whew! Have we done that  many amended returns already? It certainly seems that way. Earlier this year, we started working with a developer to help him sell houses. Their sales have gone crazy. We've done hundreds of 2008 amended returns to claim the credit right now, instead of next year. In the process, we've learned all about the different iterations of relationships. We've learned how people can totally foul up their tax lives by filing multiple amended returns in the same year. And how, even when they correct their own oversights, they don't prepare the new return to take into account how the originally omitted income affects other limits, credits and tax benefits. We've also seen the way tax professionals can completely mis-interpret the tax code, even when they make a good-faith effort to understand it. One of the situations we've run into that makes it impossible to file the 1040X to get the credit, is where the buyer had filed a MFJ Form 1040 for 2008 - but is now getting divorced, or is married to someone else. Some of these folks are surprised to learn that when you amend a joint return to get the credit, you just might have to share it with your ex! We've convinced them to wait until they file their 2009 tax returns to claim the credit. When I first saw the Form 5405  Form 5405, First-Time Homebuyer Credit, I contacted my friends at IRS and asked them why they didn't include a requirement that a copy of the sales document be included? They didn't know; but thought it was a decent idea. I mean, really, doesn't that Form 5405 just beg for fraud? As it turns out, it does. On July 29, 2009, IRS announced their first successful prosecution related to fraud involving the first-time homebuyer credit.  Sheesh. Didn't IRS learn from all the EITC fraud a few years ago. This one was a no brainer. Sigh. It's no surprise that IRS is clamping down on the distribution of the refunds. Some people are getting letters, instead of checks. Letters we've seen include: 1) An alert to tell the taxpayer that IRS is investigating their claim. Do nothing. You will hear from us soon. We have responded anyway, sending them proof of the purchase. 2) A letter requesting proof of the purchase, with a copy of a purchase document signed by both the buyer and the seller. Since we work with the seller, it's easy to get the paperwork directly from them. The buyer, doing his/her own amended return ought to have the escrow closing documents or the equivalent. Only, they often don't know which of the 200 pieces of paper it is. As a result, we are sending in all our Forms 5405 with a copy of the signed sales document in the first place. Knowing what IRS (finally) wants, it's just as easy to give it to them up front, isn't it? Have you been filing amended returns? What have you learned?