Expect an increase in audits of tax returns claiming the first time homebuyer credit

The IRS is implementing new procedures to catch phony claims for the first-time homebuyer credit.  The IRS will need to act quickly as the statue of limitations for making adjustments will soon expire.

According to a Treasury Inspector General for Tax Administration (TIGTA) audit, the IRS has not done enough to catch phony claims for the first-time homebuyer credit.  The IRS denied $1.6 million of claims but the estimated amount of phony claims is $513 million.  According to the TIGTA audit report, the IRS did not run sufficient amount of claims through the IRS anti-fraud computer filters.  Due to this report, the IRS will attempt to fix this issue later this year which will result in more audits.

If you are bored or a little crazy, you can read the full report here.

Generally, there is a three year statute of limitations from the date an annual income tax return is filed for the IRS to adjust your return.  The three year clock starts on the date the annual tax return is due or on the date the annual tax return was filed, whichever is later.  For example, a timely filed 2008 annual tax return is due on April 15, 2009.  So the statue of limitations for adjusting this annual tax return is April 15, 2012.  If the 2008 annual tax return was filed late on December 1, 2009, then the statue of limitations becomes December 1, 2012.  There are exceptions to this rule for annual tax returns that grossly understate income or for fraudulent annual tax returns.

For those who claimed the first time home buyer credit in 2008 and timely filed the annual tax return before April 15, 2009, you can breathe a sign a relief to know that, generally, the IRS will not be able to adjust your annual tax return.  However, for taxpayers that claimed the first time homebuyer credit after 2008, the IRS will have until April 15, 2012, to adjust 2009 annual tax returns and until April 15, 2013, to adjust 2010 annual tax returns.

If your tax return is audited, the IRS Guardian can help.  Call us at 855-MI-TaxHelp. (855-648-2943)

IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.