FTHB and relative

[dyne]

I just prepared a return for a couple allowing the FTHB credit after asking if the home was purchased from a relative to which they answered no. I had them sign a Due Diligence Form regarding the purchase of the home and item 5 was checked NO for a question about the house being purchased from a relative. After I prepared the return, they called and advised that they realized that the home WAS purchased from a relative.
To avoid this potential problem I suggest that we look at the Hud-1 or settlement statement
to compare the last names of the seller and buyer and ASK the clients if they are
in any way related to the seller. Some could qualify if the relationship is not prohibited
by law.

[Black Bart]

Kind of a tricky thing

I just prepared a return for a couple allowing the FTHB credit after asking if the home was purchased from a relative to which they answered no. I had them sign a Due Diligence Form regarding the purchase of the home and item 5 was checked NO for a question about the house being purchased from a relative. After I prepared the return, they called and advised that they realized that the home WAS purchased from a relative.
To avoid this potential problem I suggest that we look at the Hud-1 or settlement statement
to compare the last names of the seller and buyer and ASK the clients if they are
in any way related to the seller. Some could qualify if the relationship is not prohibited
by law.

about the relatives. According to IRS instructions for the form, it has to be lineal ancestors or descendants, that is, the relatives in a direct line up or down such as father, mother, grandparents, grandchildren, etc.

I'm taking that to mean it's okay to buy from your sister, brother, nephew, niece, cousins, etc. Do you agree?

[BP.]

I'm taking that to mean it's okay to buy from your sister, brother, nephew, niece, cousins, etc. Do you agree?

Yep, I agree with that.

[Black Bart]

I saw

that IRS has expanded the definition of relative to includes the spouse's relatives -- which, I alway considered anyway, except I guess they want to cover situations in which one spouse buys the house in his/her name only.

Also here's another tidbit that's now on the IRS website:

Information regarding the 2009 Form 5405, First-Time Homebuyer Credit and Repayment of the Credit
Note Regarding Settlement Statement: While the Form 5405 instructions indicate that a properly executed settlement statement should show the signatures of all parties, the IRS recognizes that the elements of the settlement document, often a Form HUD-1, may vary from jurisdiction to jurisdiction and may not reflect the signatures of the buyer and seller. The settlement statement that must be attached to the return is considered to be properly executed if it is complete and valid according to local law. In locations where signatures are not required, the IRS encourages the buyer to sign the settlement statement prior to attaching it to the tax return even in cases where the settlement form does not include a signature line.

I've got one like that I'm fixin' to send off but decided not to get it signed -- got to thinkin' it might do more damage than good 'cause an IRS employee not on the cutting edge of information updates might ask "What's this about? Why's this guy doing that? Must be somethin' suspicious. Hold this one up!"

[JohnH]

Well, we're pretty careful here in NC about keeping up with how everybody's related, espcially since it sometimes makes family reunions a time of unique discoveries. So I'm wondering if IRS would have a problem with the credit if I bought a house from my wife's aunt's son since technically he's my "step-cousin-in-law".

[taxea]

that IRS has expanded the definition of relative to includes the spouse's relatives -- which, I alway considered anyway, except I guess they want to cover situations in which one spouse buys the house in his/her name only.

Also here's another tidbit that's now on the IRS website:

Information regarding the 2009 Form 5405, First-Time Homebuyer Credit and Repayment of the Credit
Note Regarding Settlement Statement: While the Form 5405 instructions indicate that a properly executed settlement statement should show the signatures of all parties, the IRS recognizes that the elements of the settlement document, often a Form HUD-1, may vary from jurisdiction to jurisdiction and may not reflect the signatures of the buyer and seller. The settlement statement that must be attached to the return is considered to be properly executed if it is complete and valid according to local law. In locations where signatures are not required, the IRS encourages the buyer to sign the settlement statement prior to attaching it to the tax return even in cases where the settlement form does not include a signature line.

I've got one like that I'm fixin' to send off but decided not to get it signed -- got to thinkin' it might do more damage than good 'cause an IRS employee not on the cutting edge of information updates might ask "What's this about? Why's this guy doing that? Must be somethin' suspicious. Hold this one up!"

My best guess is that this refund will be held and a letter sent asking the the above information from the IRS be complied with.

[Black Bart]

Aw, look at the bright side.

Originally Posted by Black Bart

...here's another tidbit that's now on the IRS website:

"Information regarding the 2009 Form 5405, First-Time Homebuyer Credit and Repayment of the Credit
Note Regarding Settlement Statement: While the Form 5405 instructions indicate that a properly executed settlement statement should show the signatures of all parties, the IRS recognizes that the elements of the settlement document, often a Form HUD-1, may vary from jurisdiction to jurisdiction and may not reflect the signatures of the buyer and seller. The settlement statement that must be attached to the return is considered to be properly executed if it is complete and valid according to local law. In locations where signatures are not required, the IRS encourages the buyer to sign the settlement statement prior to attaching it to the tax return even in cases where the settlement form does not include a signature line."

I've got one like that I'm fixin' to send off but decided not to get it signed -- got to thinkin' it might do more damage than good 'cause an IRS employee not on the cutting edge of information updates might ask "What's this about? Why's this guy doing that? Must be somethin' suspicious. Hold this one up!"

My best guess is that this refund will be held and a letter sent asking the the above information from the IRS be complied with.

I think that notice was just put up a few days ago -- there's probably not six people in the known universe aware of it, much less a government bureaucrat. You've got a lot more faith in IRS smarts than I do and you've got a bet. I'll post the true result in about two months -- cross my heart and hope to not eat crow.

[S T]

Fthb

Well in California and from what I have seen in NC, Ga and Texas - the Settlement Statements are NOT Signed. I have received some addendums or an extra page to the Settlement Statement that has signature lines , but guess what, the Taxpayer does not have a signed copy. Escrow, the Attorney's office or Bank might have signed copies, but not the Taxpayer.

Sandy

[thomtax]

The Arkansas ones that I have seen are not signed either.

LT

[JIMJR4TAXES]

Yep, I agree with that.

NO THAT INFO IS INCORRECT-BUT IT WAS A NICE TRY--The instructions direct you to pub 544 for a clear definition of who is a relation

[Jesse]

I'm in agreement with BP. Here is a link to another discussion on the same topic.

http://www.thetaxbook.com/forums/showthread.php?t=13375&highlight=lineal

NO THAT INFO IS INCORRECT-BUT IT WAS A NICE TRY--The instructions direct you to pub 544 for a clear definition of who is a relation

I think the IRS would assert there was a step-transaction here and there would be no $16,000 bonus.

I would suggest to Taxea and others to not rely on pubs. §36 of the IRC gives the answer to related parties in reference to this credit.

(5) Related persons.
A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section , paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include ONLY his spouse, ancestors, and lineal descendants).

[Black Bart]

Kinda depressin' ain't it, Jim?

NO THAT INFO IS INCORRECT-BUT IT WAS A NICE TRY--The instructions direct you to pub 544 for a clear definition of who is a relation

Originally Posted by New York Enrolled Agent

...I would suggest to Taxea and others to not rely on pubs. §36 of the IRC gives the answer to related parties in reference to this credit.

(5) Related persons.
A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section , paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include ONLY his spouse, ancestors, and lineal descendants).

A person cain't hardly get by with bein' flip, cool, and cursory with tax answers around here -- there's just too many smart guys/girls on this board (of which, NYEA is by no means the least).

[BP.]

-BUT IT WAS A NICE TRY--

Thanks! I do nothing if not at least try.

The instructions direct you to pub 544 for a clear definition of who is a relation

See 5405 instructions under who cannot claim under 9 (a) and then the info after directing us to pub 544. Cheers!