Downpayment Assistance Faces IRS Scrutiny

The Internal Revenue Service is cracking down on non-profit organizations that fund downpayment assistance programs through contributions from sellers and builders and it is threatening to revoke their tax-exempt charitable status.The IRS is examining 185 nonprofits to see if there is a direct correlation between the amounts of downpayment assistance provided to homebuyers and the payments nonprofits receive from the sellers. Nearly a third of Federal House Administration single-family loans are originated with downpayment assistance and the defaults are generally twice as high as other FHA loans. IRS noted that DA loans not only perform badly; the cost of the house is generally increased to cover the seller's contribution. "So-called charities that manipulate the system do more than mislead honest homebuyers and ultimately jack up the cost of the home. They also damage the image of honest, legitimate charities," IRS commissioner Mark Everson said.