California And IRS Ramping Up Audits Of Homebuyers Claiming Tax Credits
INDUSTRY NEWS, TIPS FOR BUYERS
April 21st, 2010
Fraud is rampant according to state and federal taxing authorities triggering a high number of audits of those who filed returns claiming one or more of the various homebuyer tax credits. The Feds have offered a $7,500-$8,000 tax credit for first-time buyers and California has a $10,000 tax credit for new home purchasers. The Feds also added a $6,500 tax credit for existing homeowners purchasing another home.
IRS Form 5405 is attached to the tax return to prove one is eligible for the tax credit. Unfortunately, some see an opportunity to get a size-able check from the government as easy money. Audits have found many claiming the tax credit never bought a home.
In response, state and federal tax agencies have hired thousands of auditors to verify these claims. The only documentation requested to prove eligibilty is a certified copy of the closing statement provided by the escrow company. This form can be hard to come by in California because real estate closings are handled differently here than most states. The buyer is provided a partial HUD-1 closing statement reflecting their costs but do not receive the seller’s version of this statement. The IRS prefers a certified HUD-1 signed by both buyer and seller.
To prove a buyer has actually purchased a home and qualifies for one of the credits, a local tax preparer recommends including optional documentation including any of the following:
- driver’s license showing the address of the home purchased
- utility bill in the buyer’s name for the new home
- copy of homeowner’s insurance policy
- copy of grant deed
Though not required, these items may speed the approval and issuance of the tax credit check. The incidence of fraud is not unlike the problems the IRS has been dealing with concerning the Earned Income Tax Credit for dependants. The IRS has discovered multiple people claiming the same children resulting in over-payments.
The fact our state and federal governments are broke has made combatting this type of fraud a top priority for the IRS and Franchise Tax Board. Tough economic times may also be motivation for some who wish to cheat the system.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
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