It’s like clockwork: Congress cranks out a new tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. touted as a fix to an economic problem, but all it does is create problems for the IRS.
In response to the crisis caused by overvalued homes dropping rapidly in value, Congress dreamed up yet another gift to the housing sector. Known as the first-time homebuyer credit, it gives a qualified buyer a big check for buying a qualified house.
After all the newspaper stories about the new credit have been used for fishwrap, nothing remains except the enforcement nightmare. Here’s the Service’s latest warning to taxpayers and their taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. preparers. It follows the standard IRS practice: find an egregious violator whose conviction and sentencing is frightening and publicize the case as much as possible, hoping to deter other people from claiming the credit falsely.
Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.
Actually, it isn’t just the enforcement that the IRS gets stuck with. They have to advertise the credit, too, spending money promoting something that causes them problems and costs them more money. Check out the poster in English and Spanish.
Thank goodness the credit expires after 2009 (if Congress would only allow it to expire, which they probably won’t).
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