Washington - Organizations that provide seller-funded down-payment assistance to home buyers do not qualify as tax-exempt charities, the Internal Revenue Service said in a recent ruling.
Down-payment-assistance programs provide cash to homebuyers who can't afford to make the minimum down payment or pay the closing costs involved in obtaining a mortgage. Such programs can qualify as tax-exempt charitable and educational organizations in some instances. In Revenue Ruling 2006-27, the agency provides a detailed discussion of guidelines on how to meet the tests for exemption, along with a trio of examples.
The ruling states that seller-funded programs are not charities because they do not meet the requirements of section 501(c)(3). The IRS has said that it has increasingly found that organizations claiming to be charities are being used to funnel down-payment assistance from sellers to buyers through self-serving, circular-financing arrangements.
The IRS is examining 185 organizations that operate down-payment-assistance programs. The agency has also denied applications for tax exemption from over 20 organizations. A list of approved program is available at www.irs.gov .
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