I have run into quite the dilemma! If you have been following my blog, then you know that I had my IRS Offer In Compromise accepted in 2009. When you have an OIC accepted, you must agree to let the IRS take any tax refund you are entitled to for the year the OIC is accepted. So for me, any refund I am owed for 2009 will be kept by the IRS.
The tax debt I owed on was acquired prior to myself being married and was a very long time ago. So my husband is considered an “injured spouse” in IRS terms and none of his refund is ever taken to pay my tax debts. So we know with certainty that his income tax refund will go to him and not be used to pay my old tax debts even though we file jointly (we did this last year too).
My issue here is that my husband is buying our first house this year. It’s going to be in his name only, not mine. So he will be be getting the first time home buyer tax credit. If he files taxes separate, he only gets $4k for the credit. If he files jointly with me, then he gets the full $8k credit. Which makes it seem like me being added to the taxes involves doubling the credit… which would make it seem like 50% of the credit is considered mine. My concern is that the IRS will take that additional $4k (50%) as if it were my half and apply it to my old tax debt.
Now I have looked all over the Internet for information on how the two work together, but there is NOTHING that I could find. So I called the OIC department and asked the lady who accepted my OIC. She told me she “believes” that the IRS will not take any of the first time home buyer tax credit to pay my back taxes per my OIC agreement. She was not 100% sure of that though. I told her I wanted a firm answer and something in writing. She refered me to the IRS Tax Law department. The woman there said the same thing… that she was pretty sure they wouldn’t take that money from us… but she wasn’t 100% sure. She refered me to the Injured Spouse department. The guy there explained that the there is no set rule designating where those funds must be allocated in any certain situation. That the IRS will apply them however we say to on the Injured Spouse form we must fill out. So basicly, my husband has to put that the whole $8k is supposed to go to him. This IRS guy could not give me any documentation to support this and I didn’t feel very confident about what he was saying. I can just see them saying that, we fill out the form saying the money goes to my husband, and then they say “no… it doesn’t work that way”… and they take the $4k from us.
We really need the money now. Being that we have to borrow against it in order to get our house. But at this point feel like if we file for it on our 2009 taxes that we are taking a huge risk of losing 50% of the credit to the IRS. We can always wait until 2010 tax filing to claim the credit in full, but that will make things hard on us as we would have to come up with the money to pay back the loans for our purchase expenses.
Does anyone out there have any firm information on this situation? It would be greatly appreciated.
I am involved in the exact same situation, except I am the injured spouse and my husband owes. I will be paying for the house & only my name will be on the morgage. Please let me know how this works out for you? I am quite nervous the IRS will put $4Gs to my husbands debt.
Nicole,
Thanks so much for sharing your situation! I am just about to post a new blog about where I am in this whole process. We filed our taxes by mail with delivery confirmation recently. They were delivered on 4/7/10 so they have no info for me yet. I will message you once I am done writing my new blog about it.
Thanks!
I’m interested to see or hear how your situation turned out. Did they refund you the 8k?
I’m in a similiar circumsatnce
Jonathan,
Yes, we did get the full $8,000 First Time Home Buyer Tax Credit. It was a bit scary and complicated, but we did get the full refund!
They might as well get your fees and, in case you’ve got a small business, your financial records receivable. On top of that, in the event that you have leasing building they can levy your rental income. The interest as well as rewards you might obtain from bank accounts or brokerage financial records can be garnished too. In reality, virtually any flow of earnings you have coming in can be levied. But they may require over the interest and rewards. The IRS may take your financial institution accounts, brokerage house financial records, and perhaps the cash loan worth of your life insurance in the event that it desires to. And, incidentally, that involves your pensionable accounts. Simply no financial accounts can be protected.
I did the OIC thing last year and once they accept your offer and then you can get anyn rebate after the year you filed. If it’s the same year you filed for the OIC program then you will not get that rebate. I did that just last year and I got screwed. Wait till next year to buy your home..
It is true that the IRS will collect any refund or rebate owed to you for a year after your Offer In Compromise is accepted. So plan accordingly. I made sure that we bought our house and I applied for the first time home buyer cedit after my year was up. Just make sure you read EVERYTHING you are agreeing to and make sure you are ok with all of it.
I want to add… that if you owe the IRS… they are going to take your refund anyway even if you don’t apply for the OIC, so the sooner you apply for the OIC, the better.
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