Claiming and Documenting the First-Time Homebuyer Credit

BY GERARD H. SCHREIBER JR., CPA

Practitioners should be aware of increased documentation procedures for the first-time homebuyer credit and the new administrative powers available to the IRS if a client’s return is selected for review. In addition, required attachments necessitate filing a paper return for 2009 (see news release IR 2009-108).

 

This credit under IRC § 36 has been a popular incentive. Interim IRS statistics indicate more than 1.7 million returns claiming the 2008 and 2009 credits were filed through Nov. 21, 2009, with a total amount claimed of about $12 billion.

 

Its attractiveness also made it ripe for widespread abuse. Statistics from the Treasury Inspector General for Tax Administration and the IRS Criminal Investigation Division indicate erroneous or fraudulent claims were submitted in significant numbers. Accordingly, the Worker, Homeownership, and Business Assistance Act of 2009, which extended and modified the credit, also gave the IRS authority to require the taxpayer to submit a properly executed copy of the settlement statement from the purchase with the return (section 36(d)(4)) and disallow claims without an audit under the rules for the assessment of mathematical or clerical errors where such documentation is lacking (section 6213(g)(2)(P)(iii)) or where prior return information indicates the taxpayer may not be eligible (section 6213(g)(2)(P)(ii)). The section 6213 changes also eliminate an otherwise available 90-day period (150 for foreign respondents) in which taxpayers may petition the Tax Court to stay assessment of a liability pending a redetermination (although a request to the IRS for abatement may be made within 60 days). The IRS also instituted pre-refund computer filters to prevent fraud. As of Feb. 1, 2010, it had frozen about 140,000 refunds pending civil or criminal investigation, the Government Accountability Office reported (GAO-10-349).

 

To reflect these changes and others, the IRS in December 2009 revised Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. For purchases on or after Nov. 7, 2009, first-time homebuyers must attach to it a copy of the settlement statement (HUD-1). For claims based on a sales contract pending closing, a copy of the contract must be attached. If they are not able to get a settlement statement, mobile home purchasers may provide a copy of the executed retail sales contract for the home, and taxpayers with newly constructed homes may provide a copy of the certificate of occupancy. For the long-time resident credit, required documentation includes copies of Form 1098, and property tax records or homeowner’s insurance records for five consecutive years within the eight-year period ending on the purchase date of the new residence.

 

Because of the required paper filing, processing could take four to eight weeks. The IRS also is more likely than before to require additional documentation for earlier tax years. Many taxpayers who claimed the credit on their original or amended 2008 returns and submitted their HUD settlement statement have received notices and correspondence from the IRS with Form 886-A, Explanations of Items, requesting additional information. The additional information required is specified on Form 886-H-FTHBC, First-Time Homebuyer Credit Supporting Documents, which requests, in addition to the HUD-1, a copy of:

 

  • The most recent monthly mortgage statement, and
  • The occupancy permit, if the home is newly constructed.

 

In addition, a copy of two of the following may be required to verify the property is the taxpayer’s personal residence:

 

  • Driver’s license or state-issued identification showing home address.
  • Recent pay statement (within the last two months) showing name and home address.
  • Recent bank statement (within the last two months) showing name and home address.
  • Current auto registration showing name and home address.

 

The time involved in corresponding with the IRS to verify the credit can be significant for taxpayers. It may be beneficial to file more documents with the return besides the HUD-1 or at least to advise clients to keep such records readily available in case of examination of the return or disallowance of the credit.

 

For previous JofA articles on the first-time homebuyer credit, see tinyurl.com/yf6ghoa, tinyurl.com/y9jqv7s and tinyurl.com/ybf7x6h.

 

By Gerard H. Schreiber Jr., CPA, (ghschreiber@bellsouth.net) a partner with Schreiber & Schreiber CPAs in Metairie, La. He is a member of the AICPA’s IRS Practice & Procedures Committee and has authored courses and articles on various tax subjects.

 

To comment on this article or to suggest an idea for another article, contact Paul Bonner, senior editor, at pbonner@aicpa.org or 919-402-4434.

 

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