When will the IRS withdraw a tax lien under its Fresh Start program?

August 16, 2011
by David Allen Duner

Early in 2011, the IRS announced a series of measures to help taxpayers buffeted by the economic slowdown. The IRS calls these measures its “Fresh Start” program and they are intended help taxpayers who want to pay their tax liabilities but because of unemployment, slow business sales or for other legitimate reasons, cannot pay their tax debts. One of the most attractive features of the Fresh Start program involves the withdrawal of a tax lien.

Early in 2011, the IRS announced a series of measures to help taxpayers buffeted by the economic slowdown. The IRS calls these measures its “Fresh Start” program and they are intended help taxpayers who want to pay their tax liabilities but because of unemployment, slow business sales or for other legitimate reasons, cannot pay their tax debts. One of the most attractive features of the Fresh Start program involves the withdrawal of a tax lien.

Liens

When the IRS files a notice of federal tax lien (NFTL) it makes a claim to a taxpayer’s property as security or payment for a tax debt. The IRS must follow very detailed procedures, including sending the taxpayer a notice and demand for payment. If the taxpayer pays the tax debt, the IRS must release the lien within a prescribed period of time; generally within 30 days after the taxpayer satisfies the tax due, including interest and other additions.

There is an important distinction between release of a lien and withdrawal of a lien. Although the IRS may release the lien, the lien generally continues to be reflected on the taxpayer’s credit report unless the lien is withdrawn. This can negatively affect a taxpayer’s ability to get credit or, in some cases, could have a negative impact on the taxpayer obtaining a job if the employer reviews the taxpayer’s credit history.

Full payment

Under the “Fresh Start” program, the IRS has announced that liens will be withdrawn immediately once full payment is made by the taxpayer. The IRS has instructed taxpayers, whose lien has been released after full payment, to request withdrawal of the lien in writing. Taxpayers use Form 12277, Application for Withdrawal, to make this request.

Direct Debit installment agreement

The IRS will also withdraw a lien if the taxpayer agrees to enter into a Direct Debit installment agreement. In this arrangement, the taxpayer consents to having funds automatically debited from a bank account for the agreed upon installment amount. The IRS prefers Direct Debit installment agreements because they are automatic: the taxpayer does not need to remember to send a check or money order.

Not everyone is eligible for lien withdrawal after entering into a Direct Debit installment agreement. The IRS has explained on its web site that qualifying taxpayers are individuals; active businesses with income tax liability only (this would exclude active businesses with unpaid employment taxes); and defunct businesses with any type of tax debt. The current amount owed by the taxpayer must be $25,000 or less. The IRS has advised on its web site that taxpayers owing more than $25,000 may pay down the balance to $25,000 prior to requesting the lien withdrawal to be eligible for the relief. Additionally, the taxpayer’s Direct Debit installment agreement must pay in full the amount owed within 60 months or before the collection statute expires, whichever is earlier. The taxpayer also must have made three consecutive Direct Debit Payments before the IRS will withdrawal the lien.

Taxpayers should use Form 12277 to request withdrawal of a lien after entering into a Direct Debit installment agreement. The IRS warned it will file a new NFTL if the taxpayer subsequently defaults on its Direct Debit installment agreement.

Lien filing thresholds

The IRS has also adjusted the lien filing threshold under the Fresh Start program. The Fresh Start changes increase the IRS lien filing threshold from $5,000 to $10,000. However, the IRS has reserved the right to file liens on amounts less than $10,000 when circumstances warrant.

 

 

For more information about the Fresh Start program contact your accountant

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Posted by Jim Evans

Northern Virginia Real Estate Market May 2010

June 10, 2010

Activity continued to increase in May

Number of Homes sold

Buyers were expected to slow down in May and there was some signs of that. However, closings continued to rise as purchasers that ratified contracts in April were clambering to cash in on the $8000 Federal Tax credit. We saw similar results throughout northern Virginia.

Sold Homes in Prince William County

There was a bit more leveling off in Prince William County, as the inventory remained extremely low! Home buyers were competing with as many as 10-15 offers and prices were beginning to get bid up. With the low pricing in the County, many would-be purchasers were better off waiting until the tax credit expiration, where their savings could be substantially greater than $8000.

Average sold price No. Virginia

The average sold price remained relatively flat in all Northern Virginia areas. This is no surprise given the current economic circumstances.

Average sold price Prince William

Time on the market continued to drop as first time buyer activity lead the way. If there is “Shadow” inventory waiting in the wings as is expected, the line should level off as that inventory becomes available. Shadow inventory refers to foreclosed homes that the banks have yet to put on the market for sale. Many lenders are saying that they have caught their breath now and will be releasing soon.

The real test of the sustainability of our marketplace and home values will take place after June, when the last of the tax credit recipients must close. There remain a lot of “if’s” in today’s real estate market. The two certainties are that homes prices in areas like Prince William have become an incredible value and interest rates have remained amazingly low for an extended period of time now. Something is gonna give. That is why smart investors have already moved in and made their move!

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Posted by Jim Evans

Are REALTORS all about the green?

March 17, 2010

OK, so it is Saint Patrick’s Day and a little green is on everyone’s mind during this economic downturn. As I was knotting up with my green tie today, I pondered the question that many people often ask. Is my agent worth the commission? These questions were magnified during the housing boom years of 2002 through 2005. It is feast or famine for those of us in the real estate business. We are like squirrels storing away our nuts for the certain oncoming winter. It has been winter for some time now and I can honestly say that REALTORS© have really stepped up for the American homeowner. When considering your representation, whether buying or selling, you should ask yourself these four things.

  1. Do I want the best in service, knowledge and negotiation working for me?
  2. Is my agent a full time REALTOR© that is up to the minute in their education?
  3. Is this one of the largest financial decisions that I will ever make?
  4. In a difficult housing market, do I want someone who understands the complexities of short selling, foreclosures and more, at my side?

Most people have heard the saying “Penny wise and pound foolish”. REALTORS© who have toughed it out the past few years have gone through extensive training to help distressed homeowners get out of difficult situations. We have invested much time and money in keeping our neighbors in their homes. We have exerted much energy figuring out how to get through to the banks and convincing them to do the right things. Most agents have spent countless hours helping people figure out how to modify their loans, and have never taken a fee for this public service. I know of several cases where due to a real estate agent’s efforts, a foreclosure has been stopped or even reversed. We are all in this together and if our knowledge can benefit our neighbors, so be it. We have lobbied the government for tax credits which continue to prop up the housing market. We have been the voice of the people when it comes to keeping mortgage interest deductions. We know all to well, that families are more secure by homeownership. Long term wealth and savings is created by real estate values, as long as supply and demand remain at reasonable levels.  We are dedicated to the preservation of affordability and the stability that homeownership brings. I hope that today finds you well. I hope that you see equity in your future. I hope that you will call on a professional when needed. So, lift your green beverage up in a toast! This housing market would have been much more severe without REALTORS©. After all the dust settles on this economy, homeownership will still be a large part of the American dream.

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Posted by Jim Evans

IRS clarifies documentation needed for tax credits

February 22, 2010

The new policy clarifies what documentation taxpayers need to submit to obtain either credit. When Congress revised the programs in November, it ordered the IRS to tighten its rules and monitoring to curtail widespread fraud that had emerged last year.

This included fictitious home purchases in which people received $8,000 checks from the government for transactions that had never occurred. In some cases, federal auditors found that fraud ringleaders were submitting multiple claims for credits and splitting the government payouts with people who had no financial ability to buy a house.

To avoid such abuses in the revised credit program — which is scheduled to be available for qualified purchases closed through June 30 — Congress directed the IRS to spell out documentation standards in detail and to install monitoring systems to spot fraud upfront. Among the keys to the monitoring system is that all documentation accompanying credit claims must comply with the IRS’s detailed rules. Here’s what the agency wants from anyone seeking a credit:

– A fully executed IRS Form 5405 (available at http://irs.gov) on which taxpayers provide basic information supporting their claim of eligibility, including income and home purchase date.

– A copy of the settlement statement proving that the sale and purchase transactions actually took place. In instructions to taxpayers issued last month, the IRS said the settlement statement should show “all parties’ names and signatures, property address, sales price, and date of purchase. Normally this is the properly executed Form HUD-1.”

The problem, however, is that home closing and settlement customs vary from state to state, and sometimes the HUD-1 does not contain both the seller’s and the buyer’s signatures. In escrow states such as California, where settlements are not sit-down affairs bringing together sellers and buyers, both sets of signatures might not appear on the HUD-1 received by the buyer.

In California, buyers sign an estimated closing statement or an estimated HUD-1 “at the time they sign their loan documents,” said Donna Grosso, president of the California Escrow Association. Sellers have their “estimated closing submitted to them for their review and signature during or near the same time period as the buyer. We prepare the final closing statement or the final HUD-1 on the closing date,” which is the date of recordation.

As a result, Grosso said, “we do not have the buyers or sellers available to sign the final closing statement.” This seems to create an obstacle to meeting the IRS’s instructions and makes it more likely that applicants’ claims will be rejected or delayed for special review.

The agency tried to address that issue Feb. 12 by loosening its requirements. “In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law,” the agency said. “The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.

In situations where the signature of the seller is not on the settlement document, the IRS advises the buyer to still sign the document.”

Despite the fact that Form 5405 continues to require all parties’ signatures on the HUD-1 or settlement document, the agency is now essentially saying: “Don’t worry about it. As long as your settlement statement conforms to prevailing local practices, we’ll accept it.”

This could be important for large numbers of repeat and first-time buyers who are planning to file for the credit with this year’s tax returns and want to be sure they get through the IRS’s tougher standards. Nationwide, according to estimates by the National Association of Realtors, 1.5 million repeat purchasers and 900,000 first-timers are expected to apply for credits this year.

What else does the IRS want to see on claims from home buyers? For repeat purchasers, the agency wants documentation that, before their latest purchase, they had lived in their former property for a consecutive five years out of the past eight years. This may include property tax records, hazard insurance records or copies of annual mortgage interest statements filed with their federal taxes.

One caveat for filers: Because of the increased documentation and monitoring, IRS processing will take four to eight weeks. So don’t expect your $6,500 or $8,000 check overnight.

via washingtonpost.com

IRS clarifies the housing tax credit.

Leave a Comment » | Tax Credit | Tagged: | Permalink
Posted by Jim Evans

7 SURPRISING FACTS ABOUT THE BUYER TAX CREDIT

January 25, 2010

The homebuyer tax credit is not as simple or straightforward as you might think. Here are some nuances that will affect homebuyers who plan to use it.

  • To qualify for the move-up tax credit, a home owner must have occupied the same principal residence for five of the last eight years consecutively.
  • Buyers can elect to claim the credit on either their 2009 or their 2010 tax return, whichever is best for them.
  • Buyers who claim the credit in 2009 can’t file electronically because the Internal Revenue Service hasn’t put the required forms on line. The wait for a refund is three or four months.
  • The home can be a mobile home or travel trailer that is fixed to land owned or leased by the home owner. A mobile home or travel trailer that is actually mobile doesn’t qualify.
  • The home can’t be purchased from a close relative, including a parent, spouse, child, grandparent or grandchild.
  • A buyer who earns no taxable income or doesn’t owe any federal income tax can qualify for the tax credit and file a tax return just to claim it.
  • Move-down buyers can be eligible for the tax credit too.

Source: Bankrate.com, Marcie Geffner (01/21/2010)

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Posted by Jim Evans

Homebuyer Tax Credit: What You Need To Know | HouseLogic

December 30, 2009

Do you qualify?

– You qualify for the Extended Homebuyer Tax Credit if:

  • You meet IRS income and homeownership rules.
  • You sign a binding contract by April 30, 2010.
  • You close on a home purchase by June 30, 2010.
Home for saleThe home of your dreams may come with a bonus: a tax credit. Image: DreamPictures/Photodisc/Getty Images

There’s happy news for current homeowners: If you intend to sell your home and buy another in 2009 or 2010, you may be eligible for a federal tax credit of up to $6,500. The Extended Homebuyer Tax Credit legislation, passed in November 2009, also shares the wealth with first-time homebuyers—up to $8,000.

Are you eligible?

You’re considered a current homeowner under IRS rules if you’ve used the home being sold or vacated as a principal residence for five consecutive years within the last eight. You’re a first-time homebuyer if you or your spouse haven’t owned a home for the three years before your purchase. 

In both cases, keep in mind that the credit amount you’re eligible for begins to decrease for joint filers if your modified adjusted gross income is $225,000 ($125,000 for individuals); it disappears at $245,000 ($145,000 for individuals).

The ultimate amount of your credit depends on the price of the home and your income.

To claim your benefit:

Close on a new principal residence between Nov. 7, 2009, and April 30, 2010. You can settle as late as June 30, 2010, as long as you have a binding contract by April 30.

Don’t spend more than $800,000 on your new home.

When you submit your tax return, attach a copy of the settlement statement you received at closing. Check with the IRS or your tax adviser to confirm what additional documentation may be needed.

Decide whether to:

  • Apply the credit to your 2009 tax return, filed on or before April 15, 2010,
  • File an amended 2009 return; or
  • Apply the credit on your 2010 return, filed on or before April 15, 2011.

First-timers who purchased a home between Jan. 1, 2009, and Nov. 6, 2009, may also be eligible for the $8,000. Keep in mind that the income limits in this case are tighter than for those who purchased after Nov. 6.

Apply the credit to your 2009 taxes

To claim the credit on your 2009 tax return:

  • Complete IRS Form 5405 to determine the amount of your available credit.
  • Apply the credit when you file your 2009 tax return or file an amended return.
  • Attach documentation of purchase to your return or amended return.

Which properties are eligible?

You can apply the credit to primary residences, including single-family homes, condos, townhomes, and co-ops.

Do I need to repay the tax credit?

No, not if you occupy the purchased home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

via houselogic.com

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Posted by Jim Evans

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