another FTHB not a question

[luke]

taxpayer got a notice from IRS saying $8,000 FTHB credit was denied (no HUD stmt sent with 5405) - she sent HUD stmt - got another IRS notice saying credit was denied because no HUD stmt - she brought letter to me
Upon further questioning, she informed me that she was recently (2008) divorced and that she and husband had owned same home since 1990s. I informed her that she was NOT qualified to receive FTHB of $8,000 AND since she bought house BEFORE 11-06-09 she was NOT qualified to get Long time home buyer credit of $6,500. In the meantime she got IRS letter saying check would be issued shortly. I told her she would have to send it back (and consequently OWE $3500 taken on original return) - She called IRS and they told her she WAS entitled to the $8,000 - I sent her certified letter stating that she should send check BACK - she then WENT to local IRS office (walkin for info etc) - At first they told her was NOT qualified then after "conferring" with "supervisor" they decided she WAS eligible for the credit (and advised her to KEEP the check) - gave her some printed info about the long time credit ($6500 NOT relevant).
Anyway she's keeping the money because she has already asked IRS TWICE and was told she should keep the money! GGGGRRRRRR........ Hope she doesnt get another letter some day saying she NOW owes the money with interest?

[JohnH]

I think I understand your scenario, but just to be certain I need to ask a question. I'm working on one similar to this so it's been on my mind a lot lately. Seems to me there's a fine line between "ownership of a home" and whether or not the home is a "principal residence." For most people the two are the same, but in the case of divorce and a few other situations, that may not be true.

Even though she and her ex husband OWNED the home, isn't it critical to know whether the home was actually her principal residence during the preceding 3 years? Even though she owned the home, if she can establish that it was not her principal residence during the qualifying period then she may indeed qualify for the FTHB credit. Or am I off base on this?

[DaveO]

I agree with your reasoning JohnH. I have a similar case in appeal now. TP owned home that was her principal residence but converted it into a rental 8 years ago to move across country. Bought a home in her new state of residence. IRS denied since she had been issued a 1098. I responded with the rental agreement signed with a mangement company.

[Jesse]

I think I understand your scenario, but just to be certain I need to ask a question. I'm working on one similar to this so it's been on my mind a lot lately.

Even though she and her ex husband OWNED the home, isn't it critical to know whether the home was actually her principal residence during the preceding 3 years? Even though she owned the home, if she can establish that it was not her principal residence during the qualikfying period then she may qualify for the FTHB credit. Or am I off base on this?

No you are not off base. You can own a home as long as it was not your primary residence in the preceding 3 years. I had a similar scenario, divorced couple still jointly owned the home while trying to sell it, ex husband lived in home, she moved out.

When questioned by IRS, we sent copies of the lease agreement from the residence she was renting, copies of utility bills and renters insurance and it was approved.

[luke]

YES John

You are correct about your scenario - in my case, she did own AND live in home until 2008....

[Burke]

[QUOTE=luke;106507Anyway she's keeping the money because she has already asked IRS TWICE and was told she should keep the money! GGGGRRRRRR........ Hope she doesnt get another letter some day saying she NOW owes the money with interest?[/QUOTE]

She might (but probably won't) get a letter in future adjusting the tax. But it would seem to me that IRS would abate any interest and penalties, if imposed, due to the bad advice.

[Burke]

Anyway she's keeping the money because she has already asked IRS TWICE and was told she should keep the money! GGGGRRRRRR........ Hope she doesnt get another letter some day saying she NOW owes the money with interest?

She might (but probably won't) get a letter in future adjusting the tax. But it would seem to me that IRS would abate any interest and penalties, if imposed, due to the bad advice. However, I am sure she won't show them your letter.