Spouses must qualify as first-time homebuyers under same provision

BY RAYMOND C. SPECIALE, ESQ., CPA

An appellate decision overturns the Tax Court on the statute’s plain language.

Reversing the Tax Court, the Eleventh Circuit held that married taxpayers filing jointly did not qualify for the first-time homebuyer credit when one of them was a longtime homeowner. The unambiguous language of Secs. 36(c)(1) and 36(c)(6) requires a married couple to be considered as a unit to qualify under either provision, the circuit court held.

Facts: Robert and Marianna Packard married in 2008. When they purchased a home together in 2009, Robert Packard had rented a home and had no ownership interest in any principal residence during the prior three-year period. Marianna Packard, however, had owned a principal residence for more than five consecutive years in the previous eight years.

For 2009, the Packards filed a joint return, claiming a $6,500 first-time homebuyer credit, the maximum under the “long-time resident” exception of Sec. 36(c)(6). The IRS rejected the claimed credit and issued a notice of deficiency.

Issues: For tax years in which the first-time homebuyer credit was available, Sec. 36(c)(6) allowed an individual to be treated as a first-time homebuyer if the “individual (and if married, such individual’s spouse)” owned and used the same principal residence for five consecutive years during the eight-year period ending on the date of the purchase of a subsequent residence.

The Tax Court acknowledged that the plain language of Sec. 36(c)(6) would not allow the Packards to take the credit as longtime homeowners, since the qualifying home had belonged solely to Marianna Packard. However, the court noted that the Packards would have been eligible for the first-time homebuyer credit if considered individually: Robert Packard under Sec. 36(c)(1) because he had not owned a residence during the three years leading up to the purchase, and Marianna Packard under Sec. 36(c)(6) as a longtime resident of her previous home. The court reasoned, “[W]e cannot believe that Congress intended to restrict the first-time homebuyer credit only to those married couples where both spouses qualify under the same paragraph of section 36(c).” Accordingly, the Tax Court held that the Packards were entitled to the credit.

Holding: The Eleventh Circuit reversed the Tax Court based on the “unambiguous” language of Secs. 36(c)(1) and 36(c)(6). The circuit court explained that the “preeminent canon of statutory interpretation” requires a court to “presume that the legislature says in a statute what it means and means in a statute what it says there.” Accordingly, the court found that the statutory language made clear Congress’s intent to treat married couples as a single, inseparable unit. While the impact of enforcing the statute might seem “inequitable” in light of the Packards’ circumstances, the result “does not shock general moral or common sense.” This is especially so, the court reasoned, since credits are “matters of legislative grace and ... not allowable unless Congress specifically provides for them.”

- Packard, No. 13-10586 (11th Cir. 3/27/14)

By Raymond C. Speciale, Esq., CPA, associate professor of accounting and law, Mount St. Mary’s University, Emmitsburg, Md.

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