Written by: Cheryl Panattoni, EA
I just closed a case that was related to an audit I handled a few years ago. Back then, as I was reviewing the member’s return for the 2010 audit issue, I noticed that she had never applied for the first time homebuyer credit, even though she qualified for it. The credit was worth $8,000, and I advised her to amend her 2009 tax year to claim it. As long as she held on to the home for 3 years and used it as her principal residence she would not have to pay it back.
The challenge was that the IRS examiner was denying the credit because the member had paid property taxes on a vacation rental (timeshare) in 2009. This, he believed, showed that she’d had an ownership interest in a principal residence during the three-year period ending on the date of purchase of the new principal residence, which disqualified her from being eligible for the credit. The case was further confused because the member had inherited a home that she and her partner had lived in together before she died suddenly.
I was assigned the member’s second case in early July of 2013. I sent out the first response on July 23, 2013, and even though we received a confirmation that the letter was received, we did not receive an answer denying the credit until March of 2014. We sent another response in April of 2014, and our second denial arrived in August of 2014. This time the IRS claimed that the member had sold the home prior to the 3 year holding period.
The issue was even further confused by the fact that the member had transferred the inherited property into a trust and had sold the property for a loss prior to the 3 year mark. We had to submit Form 5405 to indicate that she had sold the property for a loss, along with a copy of the trust documents listing the member as a sole beneficiary.
In September of 2014 we submitted a letter for a Small Case Appeal. I followed up to confirm the IRS had received it, but at some point later they lost the file. Finally, in May of this year I put in a request for help with the Taxpayer Advocate Service (TAS). I had to submit the case to the TAS office twice and make numerous follow up calls.
Yesterday I received a call from the advocate that IRS had closed the case, allowing the credit and granting interest in the amount of $1,515.42. The member will receive a refund of $9,515.42. Needless to say, she is thrilled with the result.
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