IRS Issues Revenue Ruling on Downpayment Assistance Companies : Alliance Academy

Sunday, June 25, 2006 - IRS Issues Revenue Ruling on Downpayment Assistance Companies

On May 4, 2006, the Internal Revenue Service issued Revenue Ruling 2006-27 addressing the tax-exempt status of companies providing downpayment assistance to borrowers. Specifically, the ruling holds that companies providing downpayment assistance through funding received from property sellers will not qualify for tax-exempt status as a 501(c)(3) organization.

In the ruling, the IRS holds that seller-funded payments are not motivated by “detached and disinterested generosity” but instead are made with the expectation of economic gain by facilitating the sale of the seller’s home.

An organization using seller funding for its downpayment assistance program does not get tax-exempt status because it is not construed to be operating exclusively for charitable purposes. Further, the amount of the downpayment assistance is interpreted as a rebate or purchase price reduction, and is not included in the homebuyer’s cost basis. The IRS distinguished seller-funded programs from those that use a broad base for funding, from sources not connected to the sale of a particular property.

MORE ON THE STORY

Nonprofit DPAs Unite in Response of IRS Revenue Ruling 2006-27
Monday May 22, 2:38 pm ET

SupportDownPaymentAssistance.org Advocates Need for Public Comment

GAITHERSBURG, Md., May 22 /PRNewswire/ -- An alliance of nonprofit organizations that provide down payment assistance have joined forces to urge Treasury Secretary John W. Snow to suspend IRS Revenue Ruling 2006-27 and create an opportunity for public comment on the impact the ruling will have on low-to-moderate income homebuyers, the housing industry, and the national economy.

The organizations united in response to a May 4th revenue ruling by the Internal Revenue Service that could result in preventing certain nonprofit organizations from providing down payment assistance to low and moderate income individuals and families who require help to purchase a home.

"The negative impact that the revenue rule will have on American homebuyers and an already declining housing market demands that the general public and key stakeholders should have an opportunity to comment on key elements of the ruling and whether there is a more effective and cost beneficial way to accomplish its objectives," said Ann Ashburn, AmeriDream President and CEO. The alliance has named Ms. Ashburn as its chair and chief spokesperson.

Absent from the ruling is the recognition that the nonprofit down payment assistance sector was created nearly a decade ago with IRS's approval and is now responsible for providing annually over $500 million of assistance to homebuyers. As a result of nonprofit down payment assistance, over 625,000 individuals and families have achieved homeownership. The sector gives financial assistance to approximately 40% of the mortgages that FHA insures. Their mission, similar to FHA's, is to help low-to-moderate income homebuyers.

"The nonprofit down payment assistance sector has had a tremendous positive social and economic impact for low and moderate income individuals and families and has contributed significantly to the national economy, especially with housing contributing so much to our national growth over the past few years," said Kelly Schwedland, President of the Genesis Foundation, who also serves as an alliance spokesperson. "The IRS revenue ruling would take all of these positive contributions away."

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Sunday, June 25, 2006 - IRS Issues Revenue Ruling on Downpayment Assistance Companies

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