Extra Tax Preparer Job Procedure For Taxpayers Who Formerly Claimed First Time Homebuyer Credit

December 21, 2011 by  Filed under: Taxes 

Over the next several years, tax preparer work will entail reporting extra income for individuals who claimed the First Time Homebuyer Credit in 2008. The IRS is supposed to send reminder notices to taxpayers who must repay the credit over fifteen years. However, according to a report by the Tax Inspector General for Tax Administration (TIGTA), the IRS is having trouble identifying home purchasers who should repay the tax credit.

The First Time Homebuyer Credit was initiated as a repayable amount until subsequent legislation over the next two years changed that requirement. Each revision to the law created different qualifications for the credit and distinctive credit amounts. A tax preparer review course was updated with new information for three tax years, beginning with 2008.

The credit was first implemented as essentially an interest-free loan. A home purchaser who met the definition of first time buyer was eligible to claim a refund for any part of the credit that exceeded tax liability. Many paid tax preparers calculated the credit and helped people obtain large refunds for 2008. However, this procedure should have been accompanied with an explanation that the credit is repayable over fifteen years beginning with 2010 tax returns.

In addition, any taxpayer who claimed the First Time Homebuyer Credit in either of the three tax years it was available – 2008, 2009, or 2010 – and sold or stopped using the house as a primary residence within three years must repay the entire credit. That means a tax preparer job now necessitates inquiring about whether a taxpayer claimed the credit, in which year, and if the home is still a primary residence.

Work on a 2011 tax return might involve a tax preparer requirement to calculate repayment of an entire credit. However, for sold homes, the repayment is only payable to the extent that a profit was made on the sale. Rules also apply from tax preparation training about capital gain tax on profit from selling a home that was not a principal residence for two out of five preceding years.

The TIGTA report states that the IRS did correctly send 5.2 million notices to taxpayers about repayment of the credit. However, the report also states that more than 61,400 households that should have received such notices were omitted or had incorrect information. Therefore, an addition to the tax preparation checklist is assuring that notices first time homebuyers receive from the IRS are indeed accurate.

The TIGTA report cites 27,700 instances of taxpayers receiving notices to repay the credit on homes they bought in 2009 despite only 2008 purchasers having to repay. About 18,200 of the 2008 homebuyers required to repay the credit did not obtain IRS notices. Also, 53,500 taxpayers were incorrectly informed that they owed repayment of the credit as a result of erroneous determinations of their homes as sold residences.

Whether the IRS can correct future inaccuracies in its notices to recipients of the first time homebuyer credit is uncertain.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for tax preparer work and tax professionals. Access to free questions for the tax preparer review course is available on their website.

Article Source:
http://EzineArticles.com/?expert=Sawyer_Adams

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