Want to Get Audited? Apply for Homebuyer Credit

WASHINGTON — Here’s a good way to get audited by the Internal Revenue Service this year: claim the new homebuyer tax credit.

About a fifth of all IRS examinations done by mail in the past six months were for people claiming the credit, National Taxpayer Advocate Nina E. Olson told a congressional committee Thursday — the filing deadline for individual tax returns.

The audits mean big delays in getting refunds — as much as five months — just as Congress and the Obama administration hope that tax refunds will spur economic growth and the homebuyer tax credit will improve the housing market.

“The first-time homebuyer credit is a program that I personally would not have run through the tax code,” Olson, an independent watchdog within the IRS, said in an interview.” The taxpayers need the money at the closing, and by definition, the tax code is a one-time-a-year filing event.

“Most people don’t close on their houses on April 15,” she said.

Congress passed an $8,000 credit for first-time homebuyers early last year to help jump-start housing markets as part of the massive economic recovery package. The program was so popular, Congress extended and expanded the program in November, opening it up to longtime homeowners who buy new homes.

Buyers who have owned their current homes at least five years are eligible, subject to income limits, for tax credits of up to $6,500. First-time homebuyers — or people who haven’t owned homes in the previous three years — can get up to $8,000. To qualify, buyers have to sign purchase agreements before May 1 and close before July 1.

To help prevent fraud, homebuyers are required to include a settlement statement, also known as a HUD statement, with their tax returns. Longtime homeowners have to provide proof they have owned their current home for five years. That could be done with old property tax bills, said Jackie Perlman, an analyst at the Tax Institute at H&R Block.

“Understand your obligation to provide documentation and provide it, it’s as basic as that,” Perlman said.

The documentation requirements mean that taxpayers applying for the credit cannot file their returns electronically, which also delays refunds.

Refunds take about 10 days for returns filed electronically in which the refund is deposited directly into a bank account. Refunds can take six to eight weeks for last-minute filers who use paper returns and receive checks.

As of April 2, the average refund was $2,950, up about $255 over last year.

The National Association of Realtors estimates that about 2 million first-time homebuyers took advantage of the credit last year, said spokesman Walter Molony. The realtors project that about 900,000 additional first-time homebuyers will qualify for the credit this year, along with 1.5 million repeat buyers, he said.

Through March, the IRS had completed more than 650,000 correspondence exams in which taxpayers are required to share additional information by mail. Of those exams, or audits, about 140,000 were for people claiming the homebuyer credit.

Through the end of February, more than 1.8 million taxpayers applied for the credit. Of those returns, 260,000, or little more than 14 percent, were selected for audits, Olson said in written testimony to the Senate Finance Committee.

By comparison, the IRS completed a little more than 1 million correspondence exams last year, out of about 140 million individual returns filed.

Deputy IRS Commissioner Steven Miller said the agency has worked to publicize the requirements of the homebuyer tax credit as well as others that were part of last year’s economic recovery package.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, said the IRS has a responsibility to help taxpayers understand the new tax breaks.

“The IRS needs to effectively implement the many tax incentives we enacted last year to help jump-start our economy and create more jobs,” Baucus said.

Copyrighted, The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten, or redistributed without the prior written authority of The Associated Press.
Digg This
Reddit This
Stumble Now!
Buzz This
Vote on DZone
Share on Facebook
Bookmark this on Delicious
Kick It on DotNetKicks.com
Shout it
Share on LinkedIn
Bookmark this on Technorati
Post on Twitter
Google Buzz (aka. Google Reader)

Leave a Reply

Your email address will not be published. Required fields are marked *