Credits Against Tax
The Office of Chief Counsel (OCC) advised that the Sec. 6111 general interest rules applicable to overpayments of tax apply to the first-time homebuyer credit.
As originally enacted, the refundable and repayable first-time homebuyer credit (Sec. 36) was available only for purchases made after April 8, 2008, and before July 1, 2009. The American Recovery and Reinvestment Act of 2009, P.L. 111-5 (ARRA), modified the credit for those taxpayers purchasing principal residences in 2009, increasing the amount of the credit, extending the eligible purchase dates, and eliminating the repayment provision for many taxpayers.
Taxpayers generally claim the credit on the tax return for the tax year in which they purchase the property. However, taxpayers who purchased a principal residence in the first 11 months of 2009 may choose to treat the property as if they had purchased it in 2008. A taxpayer purchasing an eligible property before filing the 2008 tax return would be able to claim the credit on the original return for 2008. If a taxpayer had already filed the 2008 tax return, he or she could file an amended return to claim the credit.
The payment of interest on a taxpayer overpayment is mandatory unless specifically prohibited by law under the rules set out in Sec. 6611. In general, no overpayment interest is payable if the overpayment is refunded within 45 days of the due date of the return without regard to extensions or the filing date of the return if the return is filed late. Sec. 6611(a) provides that “[i]nterest shall be allowed and paid upon any overpayment in respect of any internal revenue tax.” Interest is payable, in the case of a credit, from the date of the overpayment to the due date of the amount against which the credit is taken and, in the case of a refund, from the date of the overpayment to a date (to be determined by the IRS) preceding the date of the refund check by not more than 30 days.
While the Code does not define the term “overpayment,” the courts have defined it as any payment of tax in excess of what is rightfully due (Dalm, 494 U.S. 596 (1990)). The OCC noted that the first-time homebuyer credit is a refundable credit with no restrictions on the payment of interest. Thus, because a refundable credit is an overpayment of tax under these circumstances, interest will accrue on the credit under Sec. 6611. The OCC gave the following example of the application of Sec. 6611 to the first-time homebuyer credit:
Example: Taxpayer T timely files a 2008 Form 1040 on April 15, 2009. On July 1, 2009, T purchases a residence that qualifies for the first-time homebuyer credit under Sec. 36. On November 1, 2009, T files an amended 2008 Form 1040X claiming the credit under Sec. 36(g). Application of this credit to the 2008 tax year creates an overpayment. Does the IRS pay overpayment interest under Sec. 6611 to T? If so, upon what period does interest accrue?
The IRS must pay overpayment interest to T under Sec. 6611. Interest will begin to run from the date T filed the original 2008 Form 1040 (April 15, 2009). If the IRS returns the overpayment to T within 45 days of the claim for refund (i.e., 45 days from November 1, 2009), the end date for purposes of interest computation is the date of the claim for credit or refund (November 1, 2009). If, however, the IRS does not refund the overpayment within 45 days, it must pay interest until a date not more than 30 days prior to the date of the refund check.