Title:
Down Payment
Scams – The IRS is Hunting
Word Count:
361
Summary:
Coming up with
the down payment for a home purchase can be a big hurdle. If you are straining
to get the money together, be careful because the IRS is targeting down payment
scams.
Keywords:
mortgage, home
loans, loans, irs, down payment, scams, charity, donation, seller, buyer
Article Body:
Coming up with
the down payment for a home purchase can be a big hurdle. If you are straining
to get the money together, be careful because the IRS is targeting down payment
scams.
Down Payment Scams – The IRS is Hunting
Charitable organizations do not pay taxes. This occurs when an organization is
qualified by the IRS as an exempt charity under section 501c3 of the tax revenue
code. While most charitable organizations are legitimate, some are really just
business that have strained and bent the rules to gain the tax exempt status.
The IRS frowns upon such organizations and usually moves to shut them down.
Currently, the IRS is looking at over 180 tax exempt organizations that provide
down payment assistance to homebuyers. Specifically, the IRS is looking at a
seller financing strategy that it deems to be questionable. The strategy works
where a buyer does not have enough money to make the required down payment
demanded by a lender. The seller agrees to give the money to a charitable
organization in exchange for a tax deduction. The organization then makes a
loan to the buyer for the amount required to fund the down payment. Specific
strategies vary, but this is the basic idea.
The IRS views this strategy as an abuse of the charitable donation laws. It
also appears to be working with HUD and lenders to identify such transactions
because lenders are complaining the strategy is fraudulent. If the lenders knew
that the buyer could not meet the down payment threshold, they supposedly would
not be issuing the loan. With both the IRS and lender agencies unhappy, this
strategy should be avoided at all costs.
At this time, it is unclear how the government agencies will treat the seller
and buyer in such a transaction. The IRS appears to be primarily interested in
the organizations acting as charitable middlemen. Undoubtedly, sellers will
eventually be stripped of relevant tax deduction claims and face a higher audit
risk. Any ramifications to the buyer are unclear, but the lenders may look to
call loans or demand further security. Any way you cut it, these seller
financed down payment strategies should be avoided.