In the Matter of - College of Law
APPEAL OF PROPOSED DEFICIENCY
First Time Home Buyer
taxpayer’s name
Submitted by:
Student’s name, Student Attorney
Georgia State University College of Law
Philip C. Cook Low-Income Taxpayer Clinic
P.O. Box 4037, Atlanta, GA 30302-4037
Ph. (404) 413-9230
Fax (404) 413-9229
e-mail: taxclinic@gsulaw.gsu.edu
TABLE OF CONTENTS
Relief Requested .3
Procedural Background Of Matter .3
Statement Of Facts .3
Applicable Law 5
Application Of The Law To The Facts..............................................................6
Conclusion……………………………………………………………………………6
Your client’s documents will vary depending on the facts of your case.
Exhibits
A. 2009 Federal Tax Return Transcript
B. IRS Account Transcript for Tax Year 2009
C. Statutory Notice of Deficiency
D. Tax Court Docket Sheet
E. Confirmation of Request for Face-To-Face Conference at Atlanta Appeals Office
F. Power of Attorney
G. HUD-1 Settlement Statement for Purchase of the Home
H. Signed Lender’s Acknowledgement Statement for the Purchase of the Home
I. Current Georgia Driver’s License
J. Social Security Card
K. 2009 Annual Tax and Interest Statement for the Home, Showing Home Address
L. 2009 Form 1098 Mortgage Statement Interest for the Home, Showing Home Address
M. 2009 W-2’s for Mrs. TAXPAYER, Showing Home Address
N. 2009 U.S. DOE Loan Statement for Mrs. TAXPAYER, Showing Home Address
O. 2009 Form 1098-E for Mrs. TAXPAYER, Showing Home Address
P. 2012-2013 Georgia MVD Motor Vehicle Registration, Showing Home Address
Q. Notarized Letter from Mrs. TAXPAYER’s Aunt and Co-Signer on the Home Mortgage, Mrs. xxx, attesting to the fact that she has never resided at the Home.
R. 2010 Letter from the Georgia Department of Labor to Mrs. TAXPAYER’s Aunt and Co-Signer on the Home Mortgage, Mrs. xxx, at a different address from the Home
Include in this section:
• Relief requested
• Section of code applicable
• Tax year request applies to
APPEAL OF PROPOSED DEFICIENCY
RELIEF REQUESTED
(TAXPAYER) respectfully requests the Internal Revenue Service to reconsider its denial of her First-Time Homebuyer Credit under I.R.C. § 36 for tax year 2009 and eliminate the proposed deficiency for that year. Mrs. TAXPAYER was solely and exclusively entitled to the First-Time Homebuyer Credit because she satisfied all requirements for the Credit.
Include the following information in this section:
• Filing history of the year or years at issue
• Brief discussion of issues that gave rise to the liability
• Discussion of the issuance of the notice or IRS correspondence that triggered this memo and who in the IRS issued it (Examination, Appeals, Collections) and include a copy
• Discussion of whether the client or the Clinic filed something to give rise to this memo, e.g. who filed or entered an appearance in Tax Court, the date of Counsel’s Answer, etc… and whether the Clinic entered an entry of appearance and the date of Counsel’s Answer.
• Discussion of where current jurisdiction lies (Appeals, Counsel or Collections) and what transpired at lower level of IRS.
PROCEDURAL BACKGROUND OF TAX MATTER
Mrs. TAXPAYER filed a return for the year 2009 timely. (Attached as Exhibit A is a copy of the 2009 Federal Individual Income Tax Return Transcript). She filed as Single. Taxpayer claimed a First-Time Homebuyer Credit of $8,000.00 on her return. Due to sufficient withholding and the First-Time Homebuyer Credit, Mrs. TAXPAYER received a refund of $9,863.00. The Internal Revenue Service selected her return for examination. (Attached as Exhibit B is a copy of Mrs. TAXPAYER’s IRS Account Transcript for Tax Year 2009). During the course of that examination, the IRS disallowed one half of Mrs. TAXPAYER’s First-Time Homebuyer Credit.
Mrs. TAXPAYER was notified in August, 2012, in a Statutory Notice of Deficiency, that the IRS was proposing an additional deficiency for the year 2009 in the amount of $4,000.00 and penalties in addition to tax under I.R.C. section 6651(a)(1) based on the same disallowances stated in the IRS letter dated August 15, 2012. (Attached as Exhibit C is a copy of the Statutory Notice of Deficiency). Based on the statutory notice, Mrs. TAXPAYER filed a timely Pro Se Petition with the United States Tax Court on October 1, 2012. (Attached as Exhibit D is a copy of the Tax Court Docket). The Office of Chief Counsel filed an answer to the petition on January 7, 2013. The matter was diverted to the Brookhaven Campus Appeals Office on January 15, 2013. Subsequently, Mrs. TAXPAYER contacted the Georgia State Law School Low-Income Taxpayer Clinic for assistance. The Tax Clinic filed a request for a face-to-face conference at the Atlanta Appeals Office, which was granted on March 6, 2013. (Attached as Exhibit E is a copy of the Confirmation of Request for Face-To-Face Conference at Atlanta Appeals Office). A copy of the Clinic’s Power of Attorney is included as Exhibit F.
Since Examination issued the Notice of Deficiency, settlement jurisdiction lies with Appeals. Appeals has not yet considered this case.
Include the following information in this section:
• Complete discussion of taxpayer and his/her situation in the year(s) the liability arose and currently, including age, health, education, employment, living arrangements (rent or own), family members living with Ms. Jones or in area, and any facts that may be important with respect to the relief that is being requested. Cover why the liability arose, ability of taxpayer to pay liability, etc.
• Have supporting documents and, whenever one exits and it is referred to, be sure that it is described, e.g. “Attached as Exhibit X is a copy of the lease that the taxpayer entered into showing that the taxpayer lived at the premises during the period of ____ to ____.”
STATEMENT OF FACTS
Mrs. TAXPAYER purchased a single family home on January 23, 2009. (Attached as Exhibit G is a copy of the HUD-1 Settlement Statement dated January 23, 2009; Attached as Exhibit H is a copy of the Signed Lender’s Acknowledgement Statement for the Purchase of the Home). The home is located at _____Street, Snellville, GA 30039 (the “Home”). This Home was the first and only real property ever purchased by Mrs. TAXPAYER. In order to qualify for financing for the property, the mortgage lender, _____Bank, required a guarantor to co-sign the loan agreement and promissory note. Strictly as a family courtesy, Mrs. TAXPAYER’s aunt, Mrs. xxx, agreed to co-sign the documents. As a result, both Mrs. TAXPAYER and Mrs. Taxpayer appear as signatory parties to the HUD-1 Settlement Statement, Loan Agreement, and the Deed. (Attached as Exhibit G is a copy of the HUD-1 Settlement Statement dated January 23, 2009; attached as Exhibit H is the Signed Lender’s Acknowledgement Statement for the Purchase of the Home).
Following the purchase, Mrs. TAXPAYER immediately moved into the home. Mrs. TAXPAYER lived in the home from the date of purchase, and it continues to be her principal residence through this day. In support of Mrs. TAXPAYER’s continued residency in her Home, attached are the following exhibits:
• Exhibit I is a copy of Mrs. TAXPAYER’s Georgia Driver’s License, Issued May 22, 2009 and Showing Home Address;
• Exhibit J is a copy of Mrs. TAXPAYER’s Social Security Card
• Exhibit K is a copy of the 2009 Annual Tax and Interest Statement for the Home, Showing Home Address;
• Exhibit L is a copy of the 2009 Form 1098 Mortgage Interest Statement for the Home, Showing Home Address
• Exhibit M are copies of the 2009 W-2 Documents for Mrs. TAXPAYER, Showing Home Address
• Exhibit N is a copy of the 2009 U.S. DOE Loan Statement for Mrs. TAXPAYER, Showing Home Address
• Exhibit O is a copy of the 2009 Form 1098-E for Mrs. TAXPAYER, Showing Home Address
• Exhibit P is a copy of e 2013 Georgia MVD Motor Vehicle Registration for Mrs. TAXPAYER’s vehicle, Showing Home Address
Mrs. TAXPAYER made all payments for the mortgage, taxes, and property upkeep. Mrs. TAXPAYER’s aunt, Mrs. Xxx, has not moved into the Home, never lived in the Home, and has never made any payments whatsoever for the mortgage, taxes, or upkeep. TAXPAYER’s aunt’s principal residence is located at _______Roswell Road NE, Atlanta, GA 30328. (Attached as Exhibit Q is a Notarized Letter from Mrs. Xxx, verifying the fact that she has never lived at the Home, and instead permanently resides at AAA address; attached as Exhibit R is a 2010 Letter from the Georgia Department of Labor to Mrs. Xxx, which is addressed to her permanent address at AAA address).
Under this section don’t put facts, only law. The section should begin with statutory references, then cases, then regulations, then other authority.
APPLICABLE LAW
Summary
The First-Time Homebuyer Credit, found in Code section 36, was in effect for tax years 2008-2010, with an extension for certain members of the military, foreign service, and intelligence communities until 2011. § 36(h)(3). The Credit reduced the Federal income tax liability for qualified individuals who purchased a principal residence from April 2008 through October 2010. The Credit had many limitations, but generally it provided the homebuyers with up to $8,000, based on a percentage of the purchase price of the home. § 36(b). The Credit’s name is misleading. A first-time homebuyer is defined as an individual who did not have an ownership interest in a principal residence for the three years preceding the purchase of a home. § 36(c)(1). The Credit was extended to include homebuyers who had owned a principal residence for five of the previous eight years. § 36(c)(6).
Depending on the purchase date, the Credit served as either an interest-free loan or an outright grant. For individuals taking the Credit on a purchase before January 1, 2009, the amount of the Credit must be repaid in equal annual installments over a 15 year recapture period beginning in the second tax year following purchase (approximately $500 per year for those who received the maximum credit for those years, $7,500). § 36(f)(1). Because the recapture appears on the taxpayer’s income tax return, during the recapture period the taxpayer must file a return even if their income is less than the filing requirement. § 36(e). If the home is sold before the recapture period ends, the recapture is accelerated, except on the death of the taxpayer, an involuntary conversion, a transfer between spouses, or a transfer incident to divorce. § 36(f)(2) and (4). The amount of accelerated recapture is limited by the amount of gain on the sale. § 36(f)(3)
If the Credit was taken on a purchase after January 1, 2009, recapture is waived and accelerated recapture, subject to the exceptions described above, can only be triggered in the first 36 months of ownership. § 36(f)(4)(D).
Limitations on Credit
In addition to the statutory cap on the Credit, Code section 36(b) provides further limitations. Many of the limitations were added after the original Credit was enacted, so be sure to check if the limitation applies to the specific purchase date of the home. But in general, married individuals who file separately have a lowered cap of $4,000. § 36(b)(1)(B). For closings before November 7, 2009, the Credit is phased out for modified adjusted gross income between $75,000 and $95,000 ($150,000 to $170,000 for joint filers). For purchases on November 7, 2009 and later, the phase out range is increased to $125,000 and $145,000 ($225,000 to $245,000 for joint filers). § 36(b)(2). Homes purchased on November 7, 2009 and later are also subject to a limitation based on purchase price. § 36(b)(3). The Credit is not available for homes with a purchase price greater than $800,000. The purchaser of the home must be at least 18 years old on the purchase date to be eligible for the Credit. § 36(b)(4).
In addition to these limitations, the Credit is also unavailable in the following circumstances described in section 36(d):
• The purchaser is a nonresident alien.
• The purchaser disposes of the residence during the same tax year as the purchase.
• The purchaser is a dependent of another person.
• The tax return did not include a properly executed copy of the settlement statement for the purchase.
Allocating the Credit
Code section 36(b)(1)(C) provides for the allocation of the Credit among unmarried individuals who purchase a qualifying residence. The allocation may not exceed the statutory cap for the Credit. The specific method of allocation is left to be determined by the Secretary.
In Notice 2009-12, the IRS addressed the allocation of the credit among unmarried persons under section 36(b)(1)(C). In summary, the Notice provides that the taxpayer may use any "reasonable method" for allocation. The only limit on method is one that would allocate the credit to an individual who is not eligible. The Notice provides two examples of reasonable methods: "(1) the taxpayers' contributions towards the purchase price of a residence as tenants in common or joint tenants, or (2) the taxpayers' ownership interests in a residence as tenants in common." This is not is an exclusive list of methods, however.
In Info. Letter 2009-0101 to a U.S. Senator, the IRS explained that when parents who are not eligible for the Credit co-sign a mortgage with their daughter and only the daughter has an ownership interest in the property, the daughter is entitled to 100% of the credit.
APPLICATION OF THE LAW TO THE FACTS
Mrs. TAXPAYER purchased her first Home on January 23, 2009. (Attached as Exhibit G is a copy of the HUD-1 Settlement Statement dated January 23, 2009). Mrs. TAXPAYER completed the purchase intending to use the Home as the principal residence for herself and her family. Mrs. TAXPAYER’s actions fall squarely within the letter and intent of I.R.C. § 36(a), making her eligible for the First-Time Homebuyer Credit. In accordance with I.R.C. § 36(a) and the limitation in I.R.C. § 36(b) as applied for 2009, Mrs. TAXPAYER was entitled to the lesser of 10% of the total purchase price of the home or $8,000.00. Since the purchase price of Mrs. TAXPAYER’s Home was $247,340.00, Mrs. TAXPAYER’s maximum allowable credit was $8,000.00. Also, since Mrs. TAXPAYER had no present ownership interest in any real property during the 3-year period ending on the date she purchased her Home, Mrs. TAXPAYER qualifies as a first-time homebuyer under I.R.C. § 36(c).
Additionally, the Home Mrs. TAXPAYER purchased also qualifies as a principal residence under I.R.C. § 36(c) and I.R.C. § 121, because of (1) her intent to live in the Home exclusively when she purchased it, and (2) her subsequent use of the Home for exactly that purpose through this day. Since Mrs. TAXPAYER occupied her Home for a majority of the year, in every year since she purchased it, her Home falls within the definition of a principal residence under Treas. Reg. § 1.121–1(b)(2). Furthermore, Mrs. TAXPAYER did not move out of the Home or otherwise cease utilizing it as a principal residence in the year of purchase, thereby avoiding the exclusion for claiming the Credit in 2009 under I.R.C. § 36(d).
CONCLUSION
Mrs. TAXPAYER respectfully submits that she is entitled to receive and keep the entire $8,000.00 First Time Homebuyer Credit that she claimed on her return for the 2009 Tax Year. Therefore, Mrs. TAXPAYER respectfully requests the Secretary to reconsider the $4,000.00 deficiency.
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