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In-depth: how the IRS botched the first-time home buyer tax credit

In our last post we discussed a recent study of the IRS' administration of the first-time home buyer tax credit program. It appears that the IRS has sent erroneous payment demands to some taxpayers who owe nothing while failing to catch a few pretty obvious fraud schemes related to the tax credit. The most recent study into the IRS' antics highlights the importance of calling an experienced Orange County tax law attorney if you are contacted by the IRS. An attorney will properly manage and document all interactions with the IRS so a taxpayer will not fall victim to the failings of the IRS.

The recent audit of the IRS' performance indicates that the IRS has repeatedly failed to distinguish between taxpayers who received the first-time home buyer tax credit in 2008 and those who received the tax credit afterward. The 2008 version of the tax credit was not a true credit, but rather an interest-free $7,500 loan that was supposed to be repaid over a 15-year period. The subsequent iterations of the first-time homebuyer tax credit were more traditional tax credits worth up to $8,000 that did not have to be repaid.

Over 60,000 taxpayers in California and across the country were sent erroneous notices. The type of notice mistakes varied including:

  • Over 800 repayment demands sent to deceased taxpayers whose estates were not legally required to repay the tax credit.
  • Almost 12,500 erroneous notices informing people with the 2008 loan-version of the tax credit that they did not have payments due.
  • Over 27,000 taxpayers who had the 2009-version of the credit were told that they had to send in payments despite no payments being due.

Dealing with the IRS is confusing enough. These mistakes highlight that much of the confusion taxpayers experience can be due to misinformation from the IRS. This is why it is important to deal with the IRS through the help of an attorney who can appropriately respond to the IRS' mistakes.

Source: The Los Angeles Times, "More problems are found with home buyer tax credits," Nov. 6, 2011

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