Posted by sueharke on 4/23/13 9:29am
Msg #466688

The new audit red flag for some new home buyers

It seems some new home buyers who inflated their self-employment income for several years are trying to get tax refunds. The home buyer tries to amend the tax returns that allowed him or her to get a mortgage. Once the home purchase has completed he or she looks for someone to file an amended tax return to get a refund (the new tax preparer asked did not prepare the first tax return). Me thinks this shows potential fraud from the bank the loan was obtained from. Talk about an audit a red flag! I wonder what the banks and loan officers are going to do if it happens on their loans?????

Reply by Shoshana/AZ on 4/23/13 9:33am
Msg #466690

I don't think there is anything they can do. As long as the buyer is able to pay the mortgage, they have nothing to do with it. I certainly would not want to be tangling with the IRS in a situation like this!

Reply by John Tennant on 4/23/13 9:39am
Msg #466692

I agree with you Sue.

It sounds like possible tax fraud as well as possible financial fraud. They could end up needing a criminal lawyer as well as an EA, or qualified CPA. In either case, very expensive. People never learn.

Reply by sueharke on 4/23/13 10:40am
Msg #466705

Re: I agree with you Sue.

I think H&R Block will be doing a lot of amended tax returns under these conditions as any ethical EA or CPA won't touch it with a 10 foot pole. I know I would not put my license on the line for such a return.

Reply by Linda_H/FL on 4/23/13 9:40am
Msg #466693

I think the burden is going to be on the home buyer - the LO may be complicit in perpetrating the fraud but the bottom line is on the home buyer - they initiated and carried out the fraud to begin with.

I agree with Shoshana - I think the lender is out of it. Not the LO so much but the lender.

That's why I don't believe is puffing up the numbers or fudging on my tax returns - too much to keep track of and too much risk - I just file a clean, straightforward return and be done with it. Do I forego a higher refund? Probably - but at least I can back up my numbers

JMO

Reply by desktopfull on 4/23/13 2:49pm
Msg #466780

Not so sure the lender is out of this deceit.

The lender always asks for mulitple bank statements, those alone would prove that the income was off. There are other paper trails that won't match up with the figures on the return as well that the lender should have caught. In this case, I believe they would be in violation of more than IRS rules. Anyone remember that FBI warning page of statutes your violating by committing mortgage fraud that the borrower's sign at closing. Wouldn't want to be in any of their shoes with this scenerio.

Reply by Linda_H/FL on 4/23/13 5:37pm
Msg #466830

But the tax returns go back years - usually 3

the bank statements only go back 3 months. Do othe lenders do a forensic audit of these returns to find hanky panky? All they want to see is the borrowers have income to be able to pay the mortgage, via tax returns, and the bank statements show ongoing deposits proving continuous income.


JMO and just my thoughts. But I agree - I wouldn't want to be in borrowers' shoes on this. Jeez

Reply by desktopfull on 4/23/13 7:12pm
Msg #466848

Re: But the tax returns go back years - usually 3

When I applied for a refi I was asked for a full year of bank statements and 3 yrs back tax returns, the reason given was due to being self-employed. Believe me if the income claimed didn't match what went through my bank account the loan would have been declined. They also contacted 5 of my largest accounts to verify payments made to me throughout the year. To many paper trails for the lender to follow to let a fake IRS return be the determining factor for a home loan approval.

Other than that one refi no bank has ever approved me for a loan. Most banks turned me down flat because I am self-employed, didn't matter the number of years either. I usually apply for a non-conforming loan and all they ask is when do you want to close. Non-conforming loans need no qualifing, you pay 20% down plus all closing costs and have 6 months payments in the bank.

Reply by BrendaTx on 4/23/13 7:43pm
Msg #466858

Refund? I would just be happy not having to pay arm/leg!!

* I just file a clean, straightforward return and be done with it. Do I forego a higher refund? Probably - but at least I can back up my numbers*

Reply by Barb25 on 4/23/13 9:53am
Msg #466698

Where is this information coming from?

Was it in the news? Anyone can file an amended return. They would have to prove the income. I don't understand.

Reply by Linda_H/FL on 4/23/13 10:32am
Msg #466703

Here's how I understand it

1. People inflated their self-employment income on their tax returns to help them qualify for a mortgage and to buy a home.

2. Therefore, they paid more taxes - higher income = higher taxes.

3. They get mortgage based on info on tax returns, buy home..move in..happy happy

4. Now they file an amended return to recoup some of what they claim to be an overpayment on taxes based on overstated income.

Once #4 reached, they now have an issue of not only IRS fraud (they lied on their return) but bank/lending fraud (they lied on their return).

That's how I understand it.

Reply by John Tennant on 4/23/13 10:47am
Msg #466707

Re: Here's how I understand it

Absolutely correct Linda. Real can of worms. Very expensive position to be in.

Reply by GOLDGIRL/CA on 4/23/13 12:16pm
Msg #466724

I'm confoozed, John and Sue

This is way too complicated for my wee brain..... so let me see if I got this straight. A couple will inflate their income to, say, $1 million so they can get a loan to buy their dream house, which they never would have been able to get a loan for cos their real income is say, $300,000.

So not only have they committed mortgage fraud, they've filed a phony tax return. Yikes! I get that.

So now, they back up, tell the IRS, scusi, scusi; we really didn't make $1M, we made only $300,000 and want our overpayment refunded.

So my question is, why would the IRS look at this as anything more than a couple of filers who "miscalculated," similar to the hundreds of businesses and corporations who do the same thing all the time? Why would this raise a red flag? It's not like they're "cheating" the U.S. government out of any $$. If the IRS did an audit, they'd find only $300,000 income.

And what would the lenders have to do with this? Don't they get the 1040s directly from the IRS off the 4506Ts? And for at least 2 or 3 years? So this subtrefuge would have to have been going on a long time...? Like I said, this is way beyond me!

Reply by Linda_H/FL on 4/23/13 12:48pm
Msg #466726

Re: I'm confoozed, John and Sue

My thought? Sue said they inflated their self-employment income - hence the immediate audit flags going up. I think this type of error in reporting would probably initiate a review of all their tax returns for X years prior to the filing, and every year after - then penalties and interest.

The only part I don't quite get is when you apply for a mortgage, you have to provide tax returns for 3 years prior - so IMO it would take substantial planning (and intent) to plan 3 years in advance that we're going to show this much income and get that house. <<shrug>> That's the only part of the whole thing that doesn't make sense to me. Do people REALLY plan something like this that far in advance? Call me naive I guess.

Reply by GOLDGIRL/CA on 4/23/13 12:52pm
Msg #466728

Exactly, Linda! n/m

Reply by Barb25 on 4/23/13 1:43pm
Msg #466749

This is all very interesting, really.

But you have to wonder. It seems that it is a matter of what "they" can do (IRS, FBI, whomever), it is what they are willing to do. Surely, they are overworked, understaffed with all sorts of "criminal activity" in the area of mortgage fraud. What will give "them" the most bang for the buck. And there are different factions here, no? IRS... People overpaid.. and they did! Now if it POs the IRS that they were used in a scam, well that is another story. But what do they get out of it. They still have to give back money, maybe. The banks, if payments are being made, What? LOs, well they are going to have to be dragged in screaming. There is going to have to be a lot of people working to bring this together. Who is going to want to do this? To what great benefit at this point in time? Cause it just ain't right?


Well, I sure don't know. I am just asking....But I am very interested to follow this and see what happens.

Reply by sueharke on 4/23/13 4:18pm
Msg #466807

Re: This is all very interesting, really.

In 2008 I had two different people forge letter for a schedule C that I was suppose to have reviewed and wrote a letter for. The first the LO caught and called me. I faxed back and said that I did not review the tax return or write the letter about the files Sch C.

The second time I received a letter two years letter for a similar situation. My reply again was that I did not review the tax returns or write the letter about the filed Sch C.

I never found out what happened to either event, but this shows the level of fraud that happens when people want real estate in a market as we have today.

If people overstate their income and pay a lot of taxes, how does an ethical EA, CPA, or Tax lawyer support the reason for an amended return -- stupidity and greed?? I don't know of many professionals willing to put a license on the line for just one tax return.

I suspect we will see more of this disclosed in the new in the future as people get greedy and really ask for that tax refund?????? I wonder if the people who created such a tax return know about the Criminal Investigative Division of the IRS and sharing of information with State taxing agencies.

Reply by Doris_CO on 4/23/13 11:24am
Msg #466717

Reading this conversation, all I could picture was the one document in loan packages with the FBI seal and the words "Mortgage Fraud". This is how it reads: "Mortgage Fraud is investigated by the Federal Bureau of Investigation and is punishable by up to 30 years in federal prison or $1,000,000 fine, or both. It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution."

Reply by NVLSlady/VA on 4/23/13 1:53pm
Msg #466755

Doris, (LOL)that Fraud flyer in the pckg is Ominous! n/m

Reply by John Tennant on 4/23/13 2:17pm
Msg #466772

Sue posted about Self Employment Income. To manipulate self employment income from $300,000 profit to $1,000,000 profit could not be done as a "mistake" as it would require falsifying just about every entry on the business financial statement. Since financial statements are used for more than tax returns this becomes fraud.

The IRS uses computers looking for exceptions to the percentages that are averaged out for that particular business code. No manpower is needed to do this. That is one way an audit is triggered.

Doris has very completely explained the FBI document in the loan packages, so there should be no question about financial fraud.

After reading the many threads on this forum regarding income taxes it seams to me that many posters would prefer to challenge the IRS. If you do, at some point, you may regret it. Not to say you should not question the way they work.

JMHO

Reply by Barb25 on 4/23/13 5:07pm
Msg #466817

So again, who exactly is red flagging whom?

Reply by John Tennant on 4/23/13 5:30pm
Msg #466826

The IRS red flags the Taxpayer's return for audit. n/m

Reply by Barb25 on 4/23/13 5:56pm
Msg #466836

Re: The IRS red flags the Taxpayer's return for audit.

But they will do this only if the numbers are off or if he/she/they file an amended return that doesn't look right. Correct? That won't lead to mortgage fraud unless someone reports mortgage fraud. And if you research cases that were tried the appear to be cases in which the homes when into foreclosure or they lying about their income in order to get hugh mortgage loans so they could buy and sell under valued properties for a profit. That is the mortgage fraud that is being prosecuted. Not a purchaser that lied so could get a huge loan to buy a home he is currently making the payment on. It may be in the true sense of the word that the government could pursue but ....

It is like the unlicensed practice of law. I think if one were to peruse the NR boards they could find some borderline issues. But really... First it would need to be reported (at least in Florida) and secondly if it was really something worthwhile the person would be told to stop... And then they would look in to it and see .......

Reply by John Tennant on 4/23/13 6:40pm
Msg #466844

Re: The IRS red flags the Taxpayer's return for audit.

If the IRS would find anything that could lead to mortgage fraud, more than likely they would report it. If anyone wants to be a part of that, they should go for it and just be prepared to pay in many, many ways.
JMHO