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Oops! To get homebuyer tax credit, you need to buy a house

IRS sues 2 Miami tax preparers, saying their clients' claims were bogus.

By Teresa Mears Feb 25, 2010 1:47PM

This news article comes from William P. Barrett at partner Forbes:


Continuing its long battle against tax preparers it considers incompetent or dishonest, the Internal Revenue Service on Tuesday sued a pair of Miami practitioners, saying they wrongly claimed the first-time homebuyer credit for dozens of clients.


In separate civil lawsuits, IRS lawyers said both preparers claimed the credit for clients who had not even bought homes. One preparer, Paula O. Patrice, who operates To the Max Professionals Inc., allegedly listed nonexistent addresses for purchased property, while Henry E. Medina Jr., who runs Medina Group Inc., also known as Medina & Associates, purportedly listed the same bought-property address on tax returns of different clients.


The IRS asked a federal judge to issue an order blocking the two from filing returns claiming the tax credit unless the assertion is valid. However, the agency did not ask that they be barred from tax return preparations altogether, as it has done in hundreds of other cases nationally.

Efforts to get comment from the defendants were unsuccessful. A telephone number listed in the name of Patrice's business was disconnected, while no listing could be found for Medina's operation.


Congress approved the first-time homebuyer credit in 2008 as part of efforts to stimulate the economy. Under it, people who had not owned a home for three years could take a credit of up to $7,500 if they bought a home.

Congress raised the maximum refundable credit to $8,000 and in November it widened the pool of taxpayers who could claim the credit, allowing longtime homeowners to claim a $6,500 credit. Responding to early indications that fraud involving the credit was widespread, the IRS is now requiring that taxpayers applying for the credit file their returns by paper, so that they can attach proof they have actually closed on a home.


Even the IRS admits -- as it did in a "Special Edition Tax Tip" bulletin coincidentally also issued on Tuesday -- that the rules for claiming the credit are "complex." But in every case the law requires that the taxpayer actually must have purchased a home.


That provision is at the heart of the IRS court actions.

The IRS says it looked at 30 returns Patrice filed claiming the credit and decided the tax break was unwarranted in every case. "No attempt was made to determine whether clients qualified for the credit," the lawsuit said. "Patrice misrepresented the requirements for the credit to customers and failed to mention to customers that there must have been an actual home purchased."


In four cases, the feds said, Patrice filed returns claiming home purchases by clients who listed adjusted gross income of zero, an "absence of income that should have alerted (her) that the customers did not have sufficient income to purchase a home."


As for Medina, the IRS also sampled 30 returns claiming the credit and found just one was justified. In 20 of the 30, he "reported a home purchase date that was after the date the return was prepared and filed," an impossibility, the lawsuit against him says.


In a press release, John A. DiCicco, acting assistant attorney general for the Justice Department's Tax Division, said his agency and the IRS "are committed to stopping abuse" of the first-time homebuyer credit. Such lawsuits and accompanying press releases are commonly issued by governmental tax authorities as a scare tactic in the run-up to the April 15 filing deadline for most taxpayers.


The IRS recently announced plans to regulate tax preparers. It's part of an ongoing effort to police the relatively free-and-easy tax preparation business. Taxpayers -- not the preparer -- are ultimately responsible for the accuracy of the return filed. Clients of bad preparers may owe back taxes, interest and significant penalties. But there are simple steps that taxpayers can take to avoid problem preparers.


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