On April 1, 2010, the Treasury Department reminded people (if they read Treasury press releases), that they have just to the end of April to buy a home so they can claim the up to $8,000 refundable first-time homebuyer credit (TG-622). The Worker, Homeownership and Business Assistance Act of 2009 (P.L. 111-92; 11/6/09), extended the credit to homes purchased before May 1, 2010 (for summary and links, see Nellen, Documenting the First-Time Homebuyer Credit, AICPA Tax Insider, 3/11/10).
When Congress extended the credit last November, they added features to reduce abuse. For example, individuals must now attach the closing statement to prove that they actually purchased a house. They must also be at least 18 years old. There have been many stories of abuse (see, for example, 2/27/10 post).
There are also stories of people who qualify for the credit being greatly delayed in receiving it because of the IRS asking for additional information (this pertains to the credit prior to the documentation change in November 2009). BNA had a story on this today (4/5/10) - "Treasury Reminds Taxpayers of April 30 Home Buyer Credit Deadline; Issues Remain." The BNA article includes stories of challenges some taxpayers have had in claiming the credit including one where someone who purchased a condo was denied because the IRS told him apartments did not qualify (the condo had a unit number). That taxpayer eventually got the credit approved after getting the IRS Taxpayer Advocate involved.
Per the BNA article, IRS Commissioner Shulman noted in his March 25 testimony before a House Ways & Means Committee that the IRS would likely open 200,000 audits in 2010 due to the homebuyer credit (here is a link to the testimony - that figure must be in his oral testimony as I don't see it in his written testimony).
This is an unfortunate use of IRS audit resources. I say this because I think this first-time homebuyer credit is an example of the need for members of Congress, the Administration and the public to stop expecting all benefit and stimulus programs to be handled via the tax law. Given the large dollars involved in the credit, its goal to stimulate home purchases (so people most benefit by getting the funds at time of purchase), it should have been administered as a grant by a unit within the US Department of Housing and Urban Development (HUD) for example. They could have verified eligibility during the loan approval or closing process and the funds could have been available at closing of the home purchase. Then IRS audit time could be used for better purposes. Today, the audit rate for individual returns is just 1% (IRS 2009 Data Book, pg 22). Now in 2010, the IRS will spend a lot of time auditing 1040s that claimed the homebuyer credit - most legitimately.
I think it would be good if Congress came up with some standards for when a new spending program should be administered via the tax law and when it should be a grant program administered by an existing federal agency. For example, the higher education tax credits could be handled via the Pell grant and similar Department of Education programs. This approach would reduce fraud, would enable the funds to go to those who truly need them (such as people with income too low to owe income taxes) and the students would get the funds when needed such as at the start of a semester rather than after filing a tax return).
What do you think?
Monday, April 5, 2010
First-Time Home Buyer Credit Problems
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