Are You Plagued By A Back Tax Issue?

Posted on 28. Sep, 2011 by in Filing back tax returns, Filing Back Taxes, Help Filing Back Taxes

There are times when a taxpayer files a federal income tax return by its due date and yet eventually has a back tax issue.

A back tax issue can crop up even when a taxpayer has apparently made a timely payment of all taxes due to the Internal Revenue Service.

While there are more than a few reasons to explain why this can happen, let’s focus on a recent tax credit that has caused problems for taxpayers and IRS alike.

It is called the First-Time Homebuyer Credit.

By looking at just some of the details of qualifying and applying for this credit, it may seem the best way to avoid a back tax issue precipitated by this credit is to seek the services of a tax professional, either a certified public accountant (CPA) or a tax lawyer.

To claim the credit on your 2010 income tax return, you must have bought (or entered into a binding contract to buy) a principal residence in the United States no later than April 30, 2010. In addition, closing must have taken place no later than Sept. 30, 2010.

To be considered a first-time homebuyer, you (and, if married, your spouse) must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.

Even if it is now becoming evident that there is a potential back tax issue lurking in the details of this credit, let’s continue a bit further.

To be considered a long-time resident homebuyer, you (and, if married, your spouse) must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date of purchase of the new home.

The maximum credit for a first-time homebuyer is $8,000, half that amount for married individuals filing separately.
You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. This provision bars the use of e-filing your return.

New homebuyers must attach a copy of a properly executed settlement statement. When one is not available, a copy of the dated certificate of occupancy must be attached.

Well, things have gone seriously wrong with IRS’s administration of this tax credit and more than a few taxpayers may see a back tax issue in the making.

“Control weaknesses … allowed potentially erroneous refunds of more than $513 million to be received by taxpayers who most likely did not qualify for the Homebuyer Credit,” the Treasury Inspector General for Tax Administration said in a report dated March 31, 2011.

TIGTA called for IRS “to recover erroneous claims” involving such things as purchases from related persons, invalid addresses, a taxpayer’s previous address, and invalid acquisition dates.

Unfortunately, a back tax issue may be hanging over many American homes in the next few years.

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