The new IRS policy clarified documentation that taxpayers need to submit to successfully obtain either credit. When Congress revised the credit programs in November, it ordered the IRS to tighten its rules and monitoring to curtail widespread frauds that had emerged earlier in 2009.
Buyers sign an estimated closing statement or an estimated HUD-1 “at the time they sign their loan documents,” said Donna Grosso, president of the California Escrow Assn. Sellers have their “estimated closing submitted to them for their review and signature during or near the same period as the buyer. We prepare the final closing statement or the final HUD-1 on the closing date”, which is the date of recordation.
The IRS tried to address that issue Feb. 12. “In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law,” the agency said. “The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return. In situations where the signature of the seller is not on the settlement document, the IRS advises the buyer to still sign the document.”
Despite the fact that Form 5405 continues to require all parties’ signatures on the HUD-1 or settlement document, the IRS is now essentially saying: Don’t worry about it — as long as your settlement statement conforms to prevailing local practices, we’ll accept it.