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THE ISLANDER, AUGUST 3, 2009, PAGE 15
IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud
• IRS Special Edition Tax Tip 2009-05 - July 29, 2009
On July 29, the Internal Rev
enue Service announced its first
successful prosecution related
to fraud involving the first-time
homebuyer credit and warned
taxpayers to beware of this type
of scheme.
On Thursday July 23, 2009, a
Jacksonville, Fla., tax preparer,
James Otto Price III, pled guilty
to falsely claiming the first-time
homebuyer credit on a client’s
federal tax return. Price faces
the possibility of up to three
years in jail, a fine of as much as
$250,000, or both.
To date, the IRS has executed
seven search warrants and cur
rently has 24 open criminal inves
tigations in pursuit of potential
instances of fraud involving the
credit. The agency has a num
ber of sophisticated computer
screening tools to quickly iden
tify returns that may contain
fraudulent claims for the first
time homebuyer credit.
“We will vigorously pursue
anyone who falsely tries to claim
this or any other tax credit or
deduction,” said Eileen Mayer,
Chief, IRS Criminal Investiga
tion. “The penalties for tax fraud
are steep. Taxpayers should be
wary of anyone who promises to
get them a big refund.”
Whether a taxpayer prepares
his or her own return or uses
the services of a paid preparer,
it is the taxpayer who is ulti
mately responsible for the accu
racy of the return. Fraudulent
returns may result not only in
the required payment of back
taxes but also in penalties and
interest.
First-Time Homebuyer
Credit
The First-Time Homebuyer
Credit, originally passed in 2008
and modified in 2009, provides
up to $8,000 for first-time home-
buyers.
The purchaser, however, must
qualify as a first-time homebuy
er, which for purposes of this
credit means someone who has
not owned a primary residence
in the past three years.
If the taxpayer is married,
this requirement also applies to
the taxpayer’s spouse. The home
purchase must close before Dec.
1,2009, to qualify, and the credit
may not be claimed on the pur
chaser’s tax return until after
the taxpayer closes and has pur
chased the home.
Different rules apply for
homes bought in 2008.
Full details and instructions
are available on the official IRS
Web site, IRS.gov.
First-Time Homebuyer
Credit Overview
First-time homebuyers may
be able to take advantage of a
tax credit for homes purchased
in 2008 or 2009. The credit:
• Applies to purchases that
close after April 8, 2008, and
before Dec. 1, 2009.
• Applies only to homes used
as a taxpayer's principal resi
dence.
• Reduces a taxpayer's tax bill
or increases his or her refund,
dollar for dollar.
• Is fully refundable, mean
ing the credit will be paid out to
eligible taxpayers, even if they
owe no tax or the credit is more
than the tax owed.
The credit is claimed using
Form 5405.
For 2008 Home Purchases
The Housing and Economic
Recovery Act of2008 established
a tax credit for first-time home-
buyers that can be worth up to
$7,500.
For homes purchased in 2008,
the credit is similar to a no-inter-
est loan and must be repaid in
15 equal, annual installments
beginning with the 2010 income
tax year.
For 2009 Home Purchases
The American Recovery
and Reinvestment Act of 2009
expanded the first-time home-
buyer credit by increasing the
credit amount to $8,000 for pur
chases made in 2009 before Dec.
1.
For home purchased in 2009,
the credit does not have to be
paid back unless the home ceas
es to be the taxpayer's main resi
dence within a three-year period
following the purchase.
First-time homebuyers who
purchase a home in 2009 can
claim the credit on either a 2008
tax return, due April 15, 2009,
or a 2009 tax return, due April
15, 2010.
The credit may not be claimed
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before the closing date. But, if
the closing occurs after April
15, 2009, a taxpayer can still
claim it on a 2008 tax return by
requesting an extension of time
to file or by filing an amended
return. News release 2009-27
has more information on these
options.
Frequently Asked Questions
Q. I am in the process of buy
ing a home. I expect to close the
deal before December 1, 2009.
Can I claim the first-time home-
buyer credit now? That would
allow me to use the refund for a
down payment.
A. No. You may not claim
the credit in anticipation of a
purchase that has yet to hap
pen. Until you have finalized the
purchase of your home, which
for most purchasers occurs at
the time of the closing, you do
not qualify for the credit. IRS
news release 2009-27, First-
Time Homebuyers Have Several
Options to Maximize New Tax
Credit, contains details for filing
options if the home is purchased
after April 15, 2009.
Q: When must I pay back the
credit for the home I purchased
in 2009?
A: Generally, there is no
requirement to pay back the
credit for a principal residence
purchased in 2009. The obliga
tion to repay the credit on a
home purchased in 2009 arises
only if the home ceases to be
your principal residence within
36 months from the date of pur
chase. The full amount of the
credit received becomes due on
the return for the year the home
ceased being your principal resi
dence.
Q. If I claim the first-time
homebuyer credit for a purchase
in 2009 and stop using the prop
erty as my principal residence
before the 36 month period
expires after I purchase, how is
the credit repaid and how long
would I have to repay it?
A. If, within 36 months of the
date of purchase, the property is
no longer used as your principal
residence, you are required to
repay the credit. Repayment of
the full amount of the credit is
due at that time the income tax
return for the year the home
ceased to be your principal resi
dence is due. The lull amount of
the credit is reflected as addition
al tax on that year's tax return.
Form 5405 and its instructions
will be revised for tax year 2009
to include information about
repayment of the credit.
For more information, visit
www.irs.gov. □
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