IRS Flooded With Tax Credit Requests, Slowing Process; Fraud Investigations Underway

From the Cleveland Plain Dealer
cleveland.com/realestatenews

CLEVELAND, Ohio -- Some home buyers who have requested a much-touted federal income tax credit are having to wait months to receive a refund check from the IRS.

A flood of amended tax returns and concerns about fraud have slowed the process for claiming the credit, which is aimed at first-time buyers.

As Congress works out the details of prolonging and expanding the credit offer, set to expire at the end of November, legislators are grappling with ways to make the program more efficient and less open to manipulation.

More than 1.4 million taxpayers have claimed upwards of $10 billion since 2008, when the government began offering a $7,500 credit -- a loan, really -- to people who had not owned a home in at least three years. Buyers would repay the money over 15 years. This year, Congress sweetened the package, turning the loan into an $8,000 tax credit that did not need to be repaid. To keep the cash, buyers just needed to stay in the home for three years.

The result: A boost for the moribund housing market. But along with that came a rash of fraud and innocent mistakes as people who were not qualified for the credit requested -- and received -- free government cash.

BY THE NUMBERS

A federal income tax credit has been available to first-time home buyers since 2008. It is set to expire Nov. 30.

Number of U.S. taxpayers claiming the credit:

1,426,554

Dollar amount:

$9.998 billion

Number of Ohioans claiming the credit:

48,776

Dollar amount:

$326.5 million

National rank: 33rd in terms of dollars per capita

SOURCE: Government Accountability Office (data through Aug. 22)

The Internal Revenue Service already has identified more than 160 possible fraud schemes, Linda Stiff, the agency's deputy commissioner for services and enforcement, told a U.S. House subcommittee last week. The IRS also is reviewing more than 100,000federal income tax returns that involve claims for the credit.

Recent government reports pointed out thousands of questionable claims, representing hundreds of millions of dollars. Some of the claims were filed by IRS employees. Others involved taxpayers as young as 4 years old.

As the IRS has added more fraud checks to its system, taxpayers are waiting longer for their money.

"We were getting the refunds in six weeks, and now it's taking about 20 weeks," said Marilyn Meredith, an enrolled agent who prepares tax returns in Port Huron, Mich. "The last two months is when it has really increased a lot."

Most people who buy houses this year are expected to request the credit on their 2009federal income tax return, filed in 2010. The IRS will apply the credit to whatever taxes a buyer owes and send the buyer a check for the difference. But buyers who want cash sooner have been amending their 2008 tax returns.

Those amended tax returns are filed on paper and processed manually. They go into a pool with other amended returns. The IRS receives 5 million to 7 million such returns each year, a spokesman said. Some buyers who asked for the credit in the spring are just hearing back from the IRS. And taxpayers who call to check on their refunds are being told to wait another few weeks, due to a backlog of returns and safeguards for fraud.

Filing for the credit requires no documentation of a home purchase. The form taxpayers fill out does not verify that they have not owned a home during the past three years -- a prerequisite for the credit. It asks only for the address of the home, the date of the purchase and the amount of the anticipated tax credit.

Rich Rhodes, an enrolled agent in Hinckley, tried to expedite a client's credit request by sending the IRS a settlement statement -- proof that his client bought the home. Meredith also has been attaching these statements to tax returns and writing on the forms that her clients have not owned a home in three years.

Some taxpayers are confused and probably are making mistakes on their returns, tax professionals said. People think they can request the credit before they buy a house -- not true. Others believe they can buy a home from a family member -- also prohibited.

In other cases, people are trying to fool the government. Jeffrey Schneider, an enrolled agent in south Florida, dumped two clients after they asked him to wrongly claim the credit on their tax returns. He wasn't surprised by the attempts to game a system that offers free money and requires little documentation.

"From what I've been reading, the IRS has egg on their face, all over them, because they put this nice credit out there and they get bombarded with fraud," he said.

Rep. John Lewis, a Georgia Democrat, has introduced legislation to clear up some of those problems. His bill would require taxpayers filing for the credit to be older than 18 and to provide proof of their purchase. The legislation also aims to make it easier for the IRS to run the program and to check for fraud.

A local IRS spokesman would not comment on the fraud issues. During her testimony to legislators, the IRS's Stiff said the agency will keep pursuing people who wrongly request the credit. But, she said, "We cannot let fraudulent activity undermine a program that has benefited so many."

Buy This Renovated Home and Walk to the Brand New Capitol Theatre! (OK, Subtlety Is Not Our Strong Suit)

Last week, we wrote about the foreclosure rehab initiative that was spearheaded by four individuals at PURE and Civic Builders. We renovated, marketed and sold two of the three rehabbed homes in a down market. We're proud that we've added two new homeowners to the city of Cleveland, and renovated two houses that were previously in a sad, neglected state.

But we're not finished yet. We still have one house to go, located at 7212 West Clinton Avenue on one of the best streets in the Detroit Shoreway neighborhood (and indeed, in the entire city). This street is walkable, full of homeowners and great neighbors, loaded with classic architecture and rehabbed homes, and steps away from the west side's newest arts movie theatre, the Capitol Theatre.

Inside, we've transformed the classic West Clinton colonial floor plan into a modern house, while retaining its historic features. The house has refinished top-nailed wood floors, a completely new, energy efficient mechanical system, a spacious floor plan, four bedrooms and two and a half baths. The master bedroom suite features a walk-in closet and a large, adjacent bathroom with a jetted tub and a beautiful walk-in shower. The fourth floor bonus room/media room/extra bedroom offers skylights with views of Lake Erie.

Please help us spread the word about this wonderful, rehabbed home. We'd like to sell it and add one more new homeowner to the city of Cleveland!

Two Down, One To Go: Foreclosure Rehab Initiative Successful in a Down Economy

A little over a year ago, three staff from Progressive Urban Real Estate (Lee Chilcote, Dave Sharkey and Keith Brown) and the owner of Civic Builders (Dave Fragapane) started a small rehab company. We wanted to purchase distressed properties in urban neighborhoods that, despite the downturn in the housing market and the economy, had remained strong and in demand. So we bought three homes - 3804 Whitman Ave. in Ohio City, 1302 Mentor Ave. in Tremont, and 7212 West Clinton Ave. in Detroit Shoreway.

A year later, we've sold two of the homes and are putting the final touches on 7212 West Clinton Ave., which is priced at $149,900 and remains available. Our efforts prove that, while far from easy, it's possible to rehab and sell distressed/foreclosed properties to new owners, even in our current economy.

We did so without any subsidy of the rehab costs. Much thanks to Cleveland Action to Support Housing (CASH) for writing down the interest rate on our construction loan, and to Shorebank for providing the construction financing and taking chances in a volatile market.

As a result of our efforts, three vacant and foreclosed homes have now been beautifully rehabbed - and two of the three are now occupied by new homeowners and residents of the city of Cleveland!

The above photo is an interior photo of 1302 Mentor after it was rehabbed, before the new owner moved in.

Detroit Shoreway's Capitol Theatre Opens to Great Fanfare

It's show time! Capitol Theatre reopening means flicks and fun on the West Side
By Clint O'Connor, The Plain Dealer

The opening of a movie theater is not typically a five-star event. But when it's in Cleveland, as opposed to some distant shopping mall, and when it's expected to ignite 15 blocks worth of civic revitalization, it's a rare beast indeed.

Like so many well-intentioned, let's-bring-back-the-city crusades that have sprinkled ethereal hope dust over Cleveland for the past 30 years, the restoration of the Capitol Theatre could have taken a big, fat belly-flop into the cesspool of broken dreams.

But no.

This elaborate renovation project connecting Cleveland's past with its future actually succeeded. The new Capitol, at 1390 West 65th Street just north of Detroit Avenue, opens next weekend.

For the city's cultural and nightlife scene, the theater represents something film fans have been requesting for years: a movie house on the West Side that's convenient for Clevelanders, within striking distance of Lakewood and Rocky River, and one that might offer the independent and foreign fare available for decades at the Cedar Lee Theatre in Cleveland Heights.

The project worked for two reasons, according to Jeffrey Ramsey, executive director of the Detroit Shoreway Community Development Organization. One was fresh financial sources: the federal New Market Tax Credit and Ohio's Historic Tax Credit.

The other reason: "This is not a stand-alone theater," he said. "It is part of a partnership with Cleveland Public Theatre, the Near West Theatre and the neighborhood."

If it had just been the Capitol Theatre, said Ramsey, it never would have happened.

Loads of determined folks within his organization and the Gordon Square Arts District, which runs along Detroit Avenue from West 58th Street to West 73rd Street, made it a reality, along with about $7.5 million from the tax credits, a city of Cleveland loan and grants from Cuyahoga County, the Cleveland Foundation and the Ohio Cultural Facilities Commission.

Organizers hope the sparkling movie house, which took 16 months to renovate and will employ about 20 people, draws film-goers who will spill into shops, restaurants, galleries and bars in the neighborhood before and after shows. The area is already on the rise with choice eateries, such as Luxe, La Boca and Stone Mad Irish Pub, drawing good crowds.

A Historic Time to Buy

Young people just starting to invest and buying their first homes are potentially the winners in this recession.

First-time homebuyers, most between the ages of 25 and 45, accounted for about 45 percent of home sales from January through July 2009, according to the National Association of REALTORS®

"This is a historic time," says George Jaramillo, a 35-year-old business analyst in Atlanta, who recently bought three homes, two of them foreclosures. "It's a great opportunity to make some great gains in the future."

A study by investment company T. Rowe Price points out that investing when prices are low can result in amazing gains. For instance, between 1970 and 1990, the annualized rate of return for the S&P 500 was 11.5 percent.

"We need to be shouting from the rooftops that this is not the time to get out of the market if you're young," says Christine Fahlund, a senior financial planner with T. Rowe Price. "This is the time to be in the market."

Reprinted from www.realtor.com.