About ten years back politicians seeking to be elected argued that everyone should be given an opportunity to own a home, the "American Dream." No one could argue against this statement. To encourage banks to make the loans the FDIC regulations were relaxed. Loans were offered with "zero down" and "no income verification." Billions of dollars of loans were made.
The banks packaged and sold most of these loans through Wall Street. When the loans went into default in record numbers the real estate market collapsed.
To Re-start the economy, the government stepped in with the "First Time Home Buyer Credit." Buy a home, get $9,000. This was intended to spur real estate sales. Once again, to make the credit available for everyone, the government suggested that the property only needed to be under contract to qualify for the credit. In this way the credit could be used as part of the down payment.
Thousands of returns were prepared by return preparers relying upon taxpayers' representations that they will be soon closing on their new home.
Unfortunately, many of these first time home buyers spent the $9,000 on other necessities when they received the funds and they never closed on the new homes.
The IRS is now attempting to hold the return preparers responsible for the problems that have arisen.
The IRS is proposing preparer penalties ranging from $1,000 up to$10,000 for each return prepared claiming the First Home Buyer Credit, if the taxpayer failed to close. In certain cases the IRS has threatened to seek the "business death penalty" in the form of a permanent injunction preventing the preparer from preparing any further returns. The IRS has also suggested that criminal prosecution remains an enforcement option.
Tax return preparers are not guarantors of their clients' expenses and deductions. However, the IRS appears intent to make return preparers the fall guys for this political faux pas. To fight a preparer penalty the return preparer is generally required to pay 15% of the penalty and sue in District Court for a refund after a properly filed claim for refund has been denied.
Tax Fraud Report
The Latest Criminal Tax Decisions, Selected Civil Tax Opinions and Related Economic Crimes