May 18, 2006 | Read Time: 1 minute
TAX WATCH
Groups that give down-payment assistance to home buyers do not qualify for tax-exempt status if the down payments are provided by the sellers of the homes, the IRS said in a revenue ruling.
In its ruling, the IRS said that when homeowners and builders give money to down-payment assistance organizations on the condition that the groups funnel the cash to people buying the homes they are selling, the sellers are gaining an unfair charitable advantage.
However, the IRS said that organizations can qualify for charity status if they are helping needy people make a down payment and if the money comes from donors who do not gain a financial benefit by helping people with mortgage payments.
Separately, the revenue service said it is investigating 185 existing groups that offer down-payment assistance to see whether they meet the standards for tax exemption.
Revenue rulings from the IRS are designed to help the public by stating the government’s official position on aspects of tax law.
Revenue Ruling 2006-27 will be published in the May 22 Internal Revenue Bulletin. A copy of the ruling is available online at http://www.irs.gov/pub/irs-drop/rr-06-27.pdf.
