Seller-Funded Downpayment Help Not Tax-Exempt
Organizations that provide seller-funded downpayment assistance to home buyers do not qualify as tax-exempt charities, according to a ruling this month by the Internal Revenue Service. The IRS scrutinized 185 groups operating assistance programs.
Downpayment assistance programs provide cash to home buyers who cannot afford to make the minimum downpayment or pay closing costs involved in obtaining a mortgage. Such programs can qualify as tax-exempt charitable and educational organizations under Internal Revenue Code section 501(c)(3) when properly structured and operated.
In its recent Revenue Ruling 2006-27, the IRS provides a detailed discussion of the guidelines — including two examples that meet and one that fails to meet ― the tests for exemption.
Seller-Funded Programs Not Considered Charities
The ruling makes it clear that seller-funded programs are not charities because they do not meet the requirements of section 501(c)(3).
Increasingly, the IRS has found that organizations claiming to be charities are being used to funnel downpayment assistance from sellers to buyers through self-serving, circular-financing arrangements.
In a typical scheme, there is a direct correlation between the amount of the downpayment assistance provided to the buyer and the payment received from the seller. Moreover, the seller pays the organization only if the sale closes, and the organization usually charges an additional fee for its services.
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NAHB Has More Than 250 Resources to Help You Run Your Business More Profitably
Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to more than 250 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more.
Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources.
Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed.
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NAHB Technology Solutions Directory Now Online
NAHB’s Technology Solutions Directory — an easy-to-use directory that enables builders, remodelers, contractors and other industry professionals to find information on software and IT solutions and services for their businesses — is now online. The directory is sponsored by the Business Management & Information Technology Committee.
Software and technology solutions providers interested in being listed can sign up for:
- Enhanced Listing — Listing includes company name, URL, e-mail address, mailing address, phone number, company/product description, company logo. Click here for more information.
- Standard Listing — Listing includes company name and phone number. Click here for more information.
For more information, e-mail Wil Heslop at NAHB.
The Technology Solutions Directory is solely for educational and informational purposes. Nothing in the directory should be construed as policy, an endorsement, warranty or guaranty by the National Association of Home Builders of the listed software, IT service or the software/IT vendor. The National Association of Home Builders expressly disclaims any responsibility for any damages arising from the use, application or reliance on any information contained in this directory.