For those of you who are confused about an IRS Ruling that takes effect today, here’s some information for your reference:
It is widely understood that gifts from the property seller, realtor or any other interested party to the real estate sales transaction, are not allowed. Some people have mistaken this reasoning to reject seller-supported DPA programs claiming that they represent ‘circular-financing’ schemes. This is diametrically opposed to HUD’s position.
Here’s the link to a GAO Study the IRS references to support its case. This is particularly ironic since the same study also expresses HUD’s opinion on how and why down payment assistance from seller-supported nonprofits is fundamentally and legally viable. http://www.gao.gov/new.items/d0624.pdf. (See pg. 91)
So, according to HUD’s Office of General Counsel: “The timing of payments is a key point in whether there is a seller contribution that is an inducement to purchase. If a gift is made from a non-profit entity (either directly or through a closing agent), from the non-profit’s own funds, prior to the completion of closing, the gift becomes the homebuyer’s property so the buyer can make the required down payment. After completion of the closing, a seller makes a contribution from the gross sales proceeds to the nonprofit entity. Because the buyer has not received funds from the nonprofit that can be traced to the seller’s contribution, there has not been an inducement to purchase provided by the seller.”
HUD would have to officially retract this statement in order to agree with the IRS on the ruling. So far HUD has understandably shrunk away from the issue to avoid embarrassment and conflict.
Here’s a link to the latest press release for your reference… www.prweb.com/releases/2006/5/inktomi388085.php.
Feel free to visit www.supportdownpaymentassistance.org if you have any questions…
Thank You,
Norm Martinez
Buyers-assistance.com