 | Daily Real Estate News | May 8, 2006 |
IRS Eyes Some Down Payment Assistance Providers
In its efforts to curtail abusive practices by some tax-exempt credit counseling agencies, the IRS has provided guidance about the down payment assistance that some of those entities provide to low-income home buyers.
Revenue Ruling 2006-27 addresses limited circumstances where some organizations that represent themselves as tax-exempt entities provide down payment assistance to qualified individuals. The ruling holds that if such an organization receives financial support or donations from sellers (both individual sellers and home builders), then uses that support to offer down payment assistance, the organization may not claim that it is tax-exempt.
This ruling is based on long-standing principles of the rules governing tax-exempt organizations. In cases where the tax-exempt organization is essentially acting as a conduit to assure that a donor's property is sold, then the organization has violated the charitable contribution rules. The individual (in this case the seller) who receives the benefit of the charitable contribution deduction cannot also receive a financial benefit for the contribution.
The revenue ruling can be accessed online.
— NAR
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