Nehemiah Corporation of America
Nehemiah Corporation of America is a non-profit organization based in Sacramento, California specializing in homeownership, affordable housing and community development. It started in 1994 as a small organization, but grew to prominence later in the 1990s after it developed a program that allowed home buyers to make down payments on their purchases using funds that were derived from the home sellers. This program, the Nehemiah Program, became popular and was widely emulated, giving birth to what came to be known as the seller-funded down-payment assistance industry. The industry attracted criticism from U.S. federal agencies (particularly the Government Accountability Office and the Internal Revenue Service) and was ultimately shut down in 2008 by a change in federal law.
Nehemiah Corporation of America
The Internal Revenue Service ("IRS") took public action in 2005. In mid year, it released two private letter rulings, each of which described an organization that was conducting operations in a manner similar to the Nehemiah Program. Each ruling found that (i) the organization's operations did not exclusively serve a charitable purpose but, instead, served to promote "the private interests of home sellers and other private parties" and, consequently, (ii) the payments made by home sellers to the organization would not qualify as "charitable contributions" for which the seller could claim a tax deduction. And in November 2005, the Department of Justice filed suit in Chicago on behalf of the IRS, seeking an injunction against an Illinois-based seller-funded down-payment program. The injunction sought to bar that program from "falsely advising" home sellers that they could claim their payments to the program as charitable-contribution tax deductions. The IRS made its findings applicable to all seller-funded down-payment assistance programs when it issued a revenue ruling in May 2006. That ruling, Revenue Ruling 2006–27, contrasted the tax treatment of seller-funded programs with the treatment accorded to other types of down-payment assistance. Seller-funded programs, the ruling stated, were "not operated exclusively for charitable purposes". Furthermore, payments made by the seller to the organizations were to be treated not as charitable contributions, but either as rebates to the home buyer or as reductions in the sales price of the home. Shortly after the revenue ruling was issued, Nehemiah published an open letter from its president, in which it noted its opposition to the ruling but added that the ruling did not prevent the Nehemiah Program from continuing its operations. The letter did note, however, that Nehemiah might have to pay "appropriate business taxes on the revenue generated by its downpayment assistance program".