A scary phrase, for sure.
Marti Caito was certainly spooked when the IRS told her she didn’t qualify for the First Time Homebuyer Tax Credit.
‘‘I thought I did all my homework, and I did,” Caito said.
Caito and her tax preparer were convinced she qualified for the credit, worth $7,500, and they put up their dukes for a fight.
BUYING A HOME
Marti Caito was a renter.
When the 59-year-old Somerset County massage therapist heard about the first-time homebuyer tax credit, she decided to take the plunge and buy a home.
‘‘I thought, ‘Wow, some of these are really nice,’”she said.
Her research began. She found a single-and-a-half mobile home, equipped with central heat and air, two bedrooms and two baths. She learned about leasing the land, and that payments would cover snow removal, trash pickup and other amenities.
But would a mobile home qualify for the tax credit?
‘‘I looked up the law,” Caito said. “Mobile homes were on the list for the tax credit or else I probably wouldn’t have made that move.’’
She paid $75,000 cash on Aug. 1, 2009, expecting to receive back 10 percent of the purchase price, or $7,500, when she filed her tax return.
Taxpayers are permitted to take the credit for homes purchased in 2009 on their 2008 tax returns, so Caito had previously filed for an extension on 2008. On Aug. 18, 2009, she filed that return.
Then in October, Caito received notice the IRS was questioning the credit.
Caito brought to her tax preparer the IRS paperwork, which requested, among other things, a HUD statement.
But there was no HUD statement. Instead, mobile homebuyers have to file a title change with the Motor Vehicle Commission.
This is something the IRS examiner seems to have missed.
‘‘I knew when they wanted a copy of the HUD that it might be a problem, even though the law specifically allows for the transfer of a motor home and addresses the issue,’’ said Gail Rosen, the Martinsville-based certified public accountant who filed Caito’s return.
On its website, the IRS even lists what’s necessary:
‘‘For purchasers of mobile homes who are unable to get a (HUD) settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.’’
No problem. Rosen sent back to the IRS everything it required.
For the next several months, Rosen contacted the IRS on Caito’s behalf. Her account was strangely in flux. At times, the credit showed on her account, yet Caito continued receiving notices saying otherwise.
It seemed the IRS couldn’t make up its mind.
Rosen’s office contacted the Taxpayer Advocate Service, an independent organization within the IRS charged with helping taxpayers ‘‘who are experiencing economic harm, who are seeking help in resolving problems with the IRS, or who believe that an IRS system or procedure is not working as it should,’’ as described on the IRS website. Before the service will kick in, a taxpayer has to first try to resolve tax problems “through normal IRS channels.”
It told Rosen the credit was on Caito’s account, though the credit was on hold. Because no final decision had been made on Caito’s account, it was too soon for the advocate to step in, and Rosen had to continue to work “through normal IRS channels.”
That final decision came in late December, when Caito received a notice of deficiency stating she was not entitled to the credit and owed $7,500 in taxes.
On Jan. 12, Rosen filed an appeal in tax court, and they contacted Bamboozled.
THE LAW IS CLEAR
IRS rules are quite clear. Caito’s request for the credit should have been a slam dunk.
We did some asking around.
The Motor Vehicle Commission hadn’t heard a story like Caito’s before, and it couldn’t help because it issues titles on mobile home sales but has nothing to do with settlement statements,
The Department of Transportation told us to check with the Department of Housing and Urban Development. HUD repeated to us the same IRS rules.
So Bamboozled called the IRS to see if something could be done to help Caito, who, from what we could tell, absolutely qualifies for the credit. The IRS, which won’t discuss the particulars of any taxpayer for privacy reasons, suggested Caito to contact the Taxpayer Advocate for further review.
So Rosen called again, and this time, Caito’s case was officially opened, and in seven to 10 days she should hear something from the advocate’s office.
Caito is hopeful, but she’s still worried.
‘‘I had all my bases covered and I didn’t think it was going to be an issue,’’ said Caito, who planned to put the $7,500 into her retirement nest egg. ‘‘It’s just very disheartening. I don’t know what else I could have done.’’
FIGHTING THE IRS
Caito couldn’t have done anything else. She and her tax preparer believe Caito qualifies, so they’re not giving up the fight.
That’s the right thing to do.
If you feel you’re due a credit, fight for it. Don’t avoid the credit or roll over because you’re worried the IRS may ask questions. Like it or not, that’s the IRS’ job. (Many fraudsters have tried to take advantage of this tax credit, so the IRS is on high alert.)
Yes, the fight may cost you some money. Caito is paying Rosen for her time and efforts, and if her case goes to tax court, it will cost more.
Kudos to Caito for taking a stand. We’ll let you what happens.