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Proving an allowable IRA withdrawal
Dear Tax Talk:
I've just withdrawn money from my individual retirement account
for a first-time home purchase. How do I prove to the Internal Revenue
Service that the money went to buy the house? Are there acceptable
and non-acceptable methods?
Please advise. Thanks.
Tadd
Dear Tadd:
Would it surprise you to find out that the IRS will believe you
without asking for proof to be submitted with your tax return? If
only the lender were that trusting. The IRS accepts the fact the
taxes are subject to voluntary reporting and rarely asks that you
submit evidence with your tax return. (Of course it does ask employers,
banks and brokers to submit information about your income and deductions,
so you can say they trust but verify.)
In completing your 2000 tax return, you need
to complete Form
5329 to avoid the 10 percent penalty on early withdrawals from
your IRA. (You do know you have to pay income tax on the withdrawn
amount?) On line 1 enter the amount of the early distribution. On
line 2 enter the distribution up to the $10,000 eligible for exclusion
for first-time homebuyers. On the line next to the amount column
enter exception code "09," which refers to the first-time homebuyers
exclusion.
Keep proof of the home purchase in the event
the IRS examines you. If you rented previously, I'd also keep a
copy of the lease and some rent checks.
Innocent spouse protections
Dear Tax Talk:
I am a recently divorced single mother of one. My ex-husband owes
the IRS money. All debts owed are in his Social Security number
only. Last year, the IRS took my earned income credit of $1,800
and applied that toward his debt. In our divorce decree, which was
finalized July 13, 2000, he was ordered by the court to pay the
debt to the IRS. I'm afraid to file my taxes this year for fear
that they will take my refund (about $3,000). I work hard for a
living and do not get any help from the state. I depend on that
return at the end of the year to help cover medical expenses for
my son, who has asthma and can't get decent coverage in this messed-up
state of Arizona. Is there any way I can stop the IRS from taking
my return and send them after my ex instead?
Please help me!
Stacie (a single, struggling mother who
refuses to go on welfare. As long as I can work 40 to 80 hours per
week, I will support my child!)
Dear Tax Talk:
My husband owes back child support. The IRS takes my taxes. He has
only worked three weeks this year. We have two children ourselves.
Should I file separate from him? I need my refund. Any advice?
Thanks,
Stacy
Dear Stacie and Stacy:
You both submitted similar questions and have similar names. If
you believe your tax refund may be retained by the IRS to offset
your spouse or ex-spouse's obligations, you should complete Form
8379, Injured Spouse Claim and Allocation, and submit
it with your 2000 tax return. If the IRS took your prior year's
refund you can also submit Form 8379 and attempt to get that money
refunded to you. You'll need to submit copies of your prior year's
Forms W-2 along with the claim.
If you submit Form 8379 with your 2000 tax return,
enter "injured spouse" in the upper left hand corner of your tax
return. If you need help in completing Form 8379, take your documents
and your return to your local IRS office.
Form 8379, is preferable to filing a separate
tax return since it allows you to retain the benefits associated
with married filing jointly as opposed to the less favorable filing
separately.
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