2008 first time homebuyer credit rejected

[Janitor Bob]

Client took out a mortgage loan for land and building supplies in early 2007...had and deducted mortgage interest on their 2007 return.  Since they did not move into their newly constructed home until 2008, they took a first time homebuyer credit on their 2008 return.  In 2010, IRS audited their 2007 return...and because they had mortgage interest in 2007, IRS declared that they did not qualify for the 2008 credit and must pay back thee part of the $7500 that had not been paid back from subsequent returns (2008 credit was the one that needed to be re-paid)...plus interest, of course.  The taxpayer ignored the IRS until they received another notice this past January of a final amount due (approx $6100) and gave them notice that they may file a lien or garnish.  I told client I would take a look and confirm/dispute IRS....but it seems pretty clear to me....Mortgage loan in 2007 with mortgage interest paid and claimed on 2007 return means the home was essentially purchased in 2007...not 2008 (even though they did not move in until 2008)....client owes the money....correct?

[jklcpa]

http://www.irs.gov/uac/First-Time-Homebuyer-Credit-Questions-and-Answers:-Basic-Information

JB, this is from the page linked above:

Q. When do I have to buy a new home to get the credit?

A. The credit is available for eligible home purchases after April 8, 2008. You must enter into a binding contract to buy the home before May 1, 2010, and close before July 1, 2010, in order to obtain the credit. For a home you construct, the purchase date is considered to be the date you first occupy the home. (11/19/09)

 

Reference is IRC sec 36(c)(3)(B) that says "A residence which is constructed by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence."

Edited April 28, 2015 by jklcpa
added IRC reference

[Jack from Ohio]

.

Edited April 28, 2015 by Jack from Ohio

[kcjenkins]

Client took out a mortgage loan for land and building supplies in early 2007...had and deducted mortgage interest on their 2007 return.  Since they did not move into their newly constructed home until 2008, they took a first time homebuyer credit on their 2008 return.  In 2010, IRS audited their 2007 return...and because they had mortgage interest in 2007, IRS declared that they did not qualify for the 2008 credit and must pay back thee part of the $7500 that had not been paid back from subsequent returns (2008 credit was the one that needed to be re-paid)...plus interest, of course.  The taxpayer ignored the IRS until they received another notice this past January of a final amount due (approx $6100) and gave them notice that they may file a lien or garnish.  I told client I would take a look and confirm/dispute IRS....but it seems pretty clear to me....Mortgage loan in 2007 with mortgage interest paid and claimed on 2007 return means the home was essentially purchased in 2007...not 2008 (even though they did not move in until 2008)....client owes the money....correct?

​No, JB, Judy's cite is what you need to dispute this, but you need to act fast or they will be a) trying to get their money back, which is always slow, or b ) get the IRS Lien off, which is always slow, plus will harm their credit score even after it is removed.  

[Janitor Bob]

awesome.  I will compose a response explaining that taxpayer did not occupy the newly constructed home until late 2008.  Hopefully client can get me some documents to support that date. 

[Janitor Bob]

Ugh...client moved into newly constructed home on March 20th, 2008.  Before April 8th, 2008......

[jklcpa]

One document that you could have used would be the Certificate of Occupancy.

Shame about the client missing the credit for so few days, but that happens sometimes.

[Max W]

​No, JB, Judy's cite is what you need to dispute this, but you need to act fast or they will be a) trying to get their money back, which is always slow, or b ) get the IRS Lein off, which is always slow, plus will harm their credit score even after it is removed.  

​Liens can be withdrawn so that they do not show on the credit report. This can be done even before the tax is paid.  The client can enter into a 60 month Streamline Installment agreement if they need time to pay off the tax. Payments would have to be by direct debit, but after three months of payments, the lien withdrawal can be requested using form 12227.

After that, it can take a few more months before it is processed, which depends on which processing unit it goes to.  Then the lien will be withdrawn (expunged).

Withdrawal

A "withdrawal" removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due. For eligibility, refer to Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (Internal Revenue Code Section 6323(j)) (PDF) and the video Lien Notice Withdrawal.

[kcjenkins]

Max, thanks for that info, but believe me, 3 to 6 months of an IRS Lien on your record is still going to hurt most everybody.  

[Max W]

Max, thanks for that info, but believe me, 3 to 6 months of an IRS Lien on your record is still going to hurt most everybody.  

​Only if someone is applying for a loan during that period.  After that, if it is withdrawn, there is no record of it.

[kcjenkins]

Applying for a loan, a credit card, a new job, trying to buy a new car, etc.  These days, people check out credit for a lot more than just a loan.  I'm not disagreeing with you, but it's just that a lot can happen in 6 months.