IRS Confusion of FTHB Credit

[JohnH]

http://www.mortgagenewsdaily.com/channels/newsletter/171282.aspx

Guess some of those FTHB credit claims will be coming back to haunt a few folks. Wonder how much correspondence it will take to unconfuse them when a date is entered wrong in their system. I'm thinking particulary about anyone who bought in 2009 but amended the 2008 return - that would seem the most likely error scenario on IRS's part.

After saying I would not do them, and having refused to do several, I still wound up preparing 3 altogether - one for a 2008 purchase and two for a 2009 purchase. The 2008 client didn't return this year, so I think I'll need to send them a CYA letter reminding them of the repayment requirements next year (and no matter how I word it, the letter will look like a sour grapes note even though I'm frankly glad they're not coming back).

Interesting situation with the second 2009 claim. We initially filed the return without the credit, then amended about a month ago. Last week they got a letter from IRS saying they couldn't allow the FTHB credit on the amended return because the client claimed a home mortgage interest deduction on the original. Hopefully they will be able to read the mortgage interest statement in the response we sent them showing that yes, indeed, it is required that you pay interest in 2009 on a home you purchased in 2009 (unless maybe you bought in December).

[JoshinNC]

Timeshare interest screws it up too!

We had a client that owns a timeshare in Myrtle Beach (which of course is not their primary residence) and when we submitted the return IRS sent back a letter disallowing credit due to mortgage interest. We sent them a letter explaining that it's a timeshare and they released the refund in about 4 weeks (after it took 16 weeks to process the amended).

[solomon]

Read it from the horse's mouth - including IRS response.

http://www.treas.gov/tigta/press/press_tigta-2010-51.htm

[ChEAr$]

http://www.mortgagenewsdaily.com/cha...er/171282.aspx

(snipped a bit

Interesting situation with the second 2009 claim. We initially filed the return without the credit, then amended about a month ago. Last week they got a letter from IRS saying they couldn't allow the FTHB credit on the amended return because the client claimed a home mortgage interest deduction on the original. Hopefully they will be able to read the mortgage interest statement in the response we sent them showing that yes, indeed, it is required that you pay interest in 2009 on a home you purchased in 2009 (unless maybe you bought in December).

You say IRS denied the credit because client had claimed home mortgage interest on
the original return? Does that fact in itself preclude taking the credit?

[Lion]

No

No. But, it does hint that the tax payer MIGHT have had a principal residence. It seems with this credit (unlike EIC) the IRS often jumps to whatever conclusion appeals to them and the tax payer has to prove the IRS wrong. Of course, all this delays the refund.

[BP.]

Had one initially denied FTHBC because mortgage interest was deducted on 2006 return. Had another requested that they repay the FTHBC because mortgage interest was deducted on 2006 return. Both cases the homes were sold early 2006, and therefore the three yr qualifying period was met when the FTHBC qualifying residence was purchased mid-2009. But IRS requires a response to their letters to prove it & preserve the credits. And looks like more of these will be expected, reading Solomon's link, which was excellent- thanks!

[JohnH]

You say IRS denied the credit because client had claimed home mortgage interest on
the original return? Does that fact in itself preclude taking the credit?

As Lion pointed out, that doesn't preclude taking the credit. Apparently, IRS just took the easiest path by denying it because something seemed a little odd, and then inviting us to appeal. We filed an appeal and included a copy of the mortgage statement (sent by certified mail with return receipt, of course), so now we will wait and see what happens next.

As things always seem to go, this return was a freebie so naturally it's the one that has problems. Falls into the general category of "no good deed goes unpunished".

[newbie]

>>>Apparently, IRS just took the easiest path by denying it because something seemed a little odd, <<<<

I think that's a good thing, it's a pain to write back with an explanation but hopefully they are cracking down on some of the fraud. I had a divorcee that still had an interest in the home still for sale that is the primary residence of the ex. She still makes half the mortgage payments and took the mortgage interest deduction and property taxes for her paid share. Sent a letter and copy of the lease agreement from the past few years and she got her check.

[Lion]

Fraud

And, in the meantime, all the prisoners who did not purchase residences but who applied for the credit received their fraudulent refunds quickly, because they didn't have mortgage interest on prior year returns, probably no prior year returns!

[newbie]

Yes, that is inexcuseable, I heard many IRS employees also cashed in on fraudulent claims and because of the fraud they started cracking down - to stop the bleeding. They should have been tough from day one. JMO

[Jiggers]

FTHB Credit Mess

Yep, have a client that I filed a 1040X for 2009 to claim the credit because the deal was closed by 3/31/2010.

Never owned any residence in his history!

The $8,000 credit was immediately rejected because the IRS was showing a 1098 mortgage interest in the taxpayer's file for 2009, even though it was only $200.00.

It was not shown on the tax return as there wasn't enough to itemize.

This was for the construction loan for the new home.

The IRS didn't question this, just automatically rejected it.

On July 6 I appealed the rejection of the 1040X and we are still waiting.

I did check with the IRS last week and was told that a response would be forthcoming within 30 days.

I guess I should have used the return address of the local jail and maybe it would be here already!

[gkaiseril]

And, in the meantime, all the prisoners who did not purchase residences but who applied for the credit received their fraudulent refunds quickly, because they didn't have mortgage interest on prior year returns, probably no prior year returns!

Before computerized W-2's it was not uncommon for an incarcerated individual to obtain blank W-2's and 1098's form the IRS and complete the W-2's as needed. Then they filed 1040 for a refund. And this was prior to the EITC. And now with on-line forms, on-line filing, all sorts of refundable credits they have a lot to choose from when they file their special return.

[JohnH]

\I guess I should have used the return address of the local jail and maybe it would be here already!

HA!
Very, very good!