Taxation & Estate Planning

The Long Wait for Tax Credit

By Darrin Mish

Since last April, the First time Home Owner's Tax Credit has boosted home sales this year. The tax credit incentive is due to expire by end of November but Congress is contemplating extending it. However scores of taxpayers who have applied for this credit have yet to receive their credit checks from the IRS. This is because the IRS has been inundated with amended tax returns and fraud cases. What started out as a $7,500 loan repayable over 15 years for those who have not owned a home in the last 3 years, had attracted more than 1.4 million taxpayers who have claimed in excess of $10 billion. The credit amount has been increased to 10% of the purchase price of the house subject to a maximum of $8,000 and changed from a loan to an outright tax credit. To keep the amount paid to them, taxpayers just have to stay in their homes for at least 3 years.

The tax credit benefit turned out to be a double edged sword of sorts. On one hand, it resuscitated a flagging housing industry badly hit by the sub-prime mortgage fiasco but on the other hand, it opened the floodgates to a gamut of innocent mistakes and outright fraudulent applications for the credit. Thus far, the IRS has identified more than 160 possible cases of abuses of the credit. At the same time, the agency has also subjected more than 100,000 tax returns to audit.

The US Treasury Inspector General's report last week highlighted some startling cases of fraud among first time home owners' applications, among which included almost 74,000 successful applications by taxpayers who were actually ineligible for the credit, another 19,300 successful applications by those who have not actually bought a house and even an application by a 4 year old toddler.

Sadly, due to the actions of this unscrupulous lot, genuine eligible applicants' refunds now take much longer to be processed as the IRS tackles this huge array of possible abuses by implementing more stringent fraud checks. What used to be a 6 week wait for the check now takes at least 20 weeks.

The ease of gaming the system comes about mainly because no documentary proof of purchase of a house is required during application. The taxpayer merely has to fill up a form giving details like the address of the house, the date of purchase and the estimated amount of credit being claimed. Hence, some taxpayers innocently assume that they do not have to buy a house before applying for the tax credit and others do not realize that buying a house from a family member is disallowed. Besides these genuine mistakes, the IRS also has its hands full dealing with the real cheats.

The IRS has given Congress the assurance of their concerted efforts to pursue the frauds, correct erroneous applications while making credit refunds to genuine first time homeowners.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

The Long Wait for Tax Credit is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on December 21, 2009 (boomark / email).