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Down Payment Assistance Under Fire

Justice Department seeks injunction against Partners In Charity

January 30, 2006

Washington, D.C., correspondent for MortgageDaily.com

The federal government is seeking an injunction against an Illinois-based downpayment assistance organization that it says wrongly promotes seller-paid assistance as tax deductible.

The Department of Justice wants to stop Partners In Charity from telling home sellers and real estate professionals that payments made by sellers who participate in the program are tax deductible. The lawsuit is part of a federal crackdown on downpayment assistance organizations.

Under the program, the seller pays an amount equal to the buyer's downpayment plus an administrative fee to the tax-exempt organization. Partners, like many others, then makes a grant to the homebuyer to cover the down payment and closing costs.

But the suit alleges the West Dundee company falsely advises property sellers they can claim a federal income tax deduction for the amount paid to the organization.

The complaint says the payments are not tax-deductible because they are compulsory under Partners' program, not the result of generosity, and because they bring about sale of the seller's house.

A significant number of sellers participating in the Partners program have reportedly claimed an improper charitable deduction on their federal income tax returns. The suit also asks the court to order Partners to provide the government with information on the sellers who are and have participated in the program including their names, addresses, telephone numbers and Social Security numbers.

The case is part of the Internal Revenue Service's and Justice Department's initiative to stop abusive tax schemes. The IRS announced late last year that it was investigating 11 similar groups. In a written statement, IRS Commissioner Mark W. Everson said the agency will not tolerate "schemes that mislead honest home sellers and tarnish the image of charities."

The complaint against Partners was filed in federal court in Chicago.

Partners In Charity did not return calls for comment, but the sellers' information page on the company's Web site still says, "As a seller, you will generally receive an income tax deduction as selling expenses for fees paid for using the Partners In Charity program."

A spokeswoman for the Department of Justice referred calls to the IRS. A spokesman for the IRS declined to comment further -- explaining that the agency does not comment on ongoing litigation.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]

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