Just in the past week the IRS has issued the new Form 5405 and instructions for buyers who wish to claim the homebuyer tax credit on their 2009 (or 2008) Form 1040. The form and instructions have been issued and updated in connection with the law change that extends and expands the credit. (HR 3548 from late 2009, “Worker, Homeownership, and Business Assistance Act of 2009.”) For 2009 tax returns certain items such as the settlement statement (HUD-1 usually) is a required attachment. (Note–I am not covering herein all the details of the differences resulting from the law change.)
The problem for you comes from a variance the IRS used in their form and instructions from the statute. The statute says the taxpayer (buyer) has to attach”… a properly executed copy of the settlement statement…” Common sense would suggest the buyer would take the one-sided or two-sided HUD-1 you provide and sign a copy and attach it to their personal tax return (1040)– AND thereby meet the statute. However the IRS has required in the form and instructions that the attached settlement statement must be signed by all parties. They have on the Form 5405 “…you must attach a copy of the properly executed settlement statement.” I think they have mixed up the proper sequence of words from the statute. I am in touch with the other trade associations and the federal government to deal with this.
In the meantime I suggest the following if you get requests from attorneys, tax return preparers etc. to get both, all, or any signatures on a HUD-1 in connection with the closing. Tell them to handle it outside of closing. I don’t think the IRS has the authority to do this and there is no requirement for you to volunteer to take care of it particularly when it can be handled outside closing. If anyone states you have a duty to get all these signatures they are wrong. (I normally don’t attempt legal opinions in these general messages to all AEA members but I feel strongly about this one.) Of course you can volunteer to do so but remember if you do unsigned, one-sided HUD-1 forms for privacy reasons in your normal practice there is nothing in any of this to protect you if you vary this practice just for the IRS requirement on the buyer.
Art Davis, AEA General Counsel firstname.lastname@example.org