Friday, February 25, 2011

Guidance on Tax Consequence of Distressed Homeowner Payments Provided (Notice 2011-14)

The IRS has provided guidance on the federal tax consequences of payments made to or on behalf of financially distressed homeowners under the Treasury Department's Housing Finance Agency (HFA) Innovative Fund for the Hardest-Hit Housing Markets and the Department of Housing and Urban Development's (HUD) Emergency Homeowners' Loan Program. Guidance on the information reporting requirements for these payments is also provided.

Similar to the payments described in Rev. Rul. 2009-19, I.R.B. 2009-29, 112, payments made with approved homeowners' aid program funds promote the general welfare by helping homeowners who are at risk of losing their homes either pay on their mortgage loans or transition to more affordable housing and do not involve the performance of services. Therefore, payments made under these programs to or on behalf of a homeowner are excluded from gross income under the general welfare exclusion.

Because the payments made under these programs are excluded from the homeowners' gross income they are not fixed or determinable income under Code Sec. 6041. Thus, payors are not required to file information returns or furnish copies to homeowners for payments made under these programs.

Further, for purposes of Code Sec. 6050H, interest received from a governmental unit or its agency or instrumentality is not interest received on a mortgage and, thus, is not required to be reported as interest received on a mortgage. Accordingly, if a person receives mortgage interest payments from a governmental unit or its agency or instrumentality, that person should not include those payments in the amount reported as interest received on a mortgage on Form 1098.

Finally, the IRS will not assert Code Sec. 6721 or Code Sec. 6722 penalties under against a mortgage servicer that reports payments received under an approved program on Forms 1098 during 2010. Additionally, the IRS will not assert penalties against mortgage servicers that report on Forms 1098 payments received under an approved program during calendar years 2011 or 2012 if the servicer notifies homeowners that the amounts reported on the Form 1098 are overstated because they include government subsidy payments.

The IRS will not assert Code Sec. 6721 or Code Sec. 6722 penalties against any state housing finance authority (HFA) for failing to file and furnish Forms 1098 for calendar year 2010. For calendar years 2011 and 2012, the IRS will not assert penalties if the state HFA provides each homeowner and the IRS a statement with the homeowner's name and TIN, and separately stating the amount the state HFA and the amount the homeowner paid to the mortgage servicer under the approved program during that year. The IRS intends to issue future published guidance specifying the IRS office where these statements should be filed.

Notice 2011-14, 2011FED ¶46,279

Other References:
Code Sec. 61
CCH Reference - 2011FED ¶5504.026
CCH Reference - 2011FED ¶5504.184
Code Sec. 6041
CCH Reference - 2011FED ¶35,836.075
CCH Reference - 2011FED ¶35,836.30
CCH Reference - 2011FED ¶35,836.61
Code Sec. 6050H
CCH Reference - 2011FED ¶36,186.075
CCH Reference - 2011FED ¶36,186.12
Code Sec. 6721
CCH Reference - 2011FED ¶40,220.75
Code Sec. 6722
CCH Reference - 2011FED ¶40,240.58
Tax Research Consultant
CCH Reference - TRC INDIV: 33,354
CCH Reference - TRC REAL: 6,106.25
CCH Reference - TRC FILEBUS: 9,312

1 comment:

Darwin Smith said...

Hi all,

The IRS notice provides guidance on different scenarios, but it does say that under certain circumstances the payments can be excluded from gross income and there is also a safe harbor method. Thanks a lot.....

Delinquent Taxes