U.S. Hot Line for Tipsters Pays Off

Question: The news reports of waste and fraud by government contractors sicken me. But is there really anything an individual citizen like me can do to correct the abuses and save some money for all of us taxpayers? Even though I’m anxious to put an end to it, I’m terrified of telling my boss for fear of losing my job.--L. L.

Answer: Yours is the plight of all would-be whistle blowers and is a dilemma with which the government is sympathetic. Some seven years ago, the General Accounting Office formed a hot line for tipsters with information on suspected waste, mismanagement and fraud.

To date, the hot line has received more than 74,000 calls from others who share your concerns. Following up, the GAO has identified some $20 million that was being misspent. Because of the calls, the GAO estimates that taxpayers have saved $24 million.

To reach the hot line, call 1-800-424-5454.

Q: You recently wrote about some of the dos and don’ts of postponing the payment of taxes when you sell a house. You mentioned that a taxpayer has only two years after the sale date of his home to buy or build--and move into--a replacement if he is to qualify for the tax postponement. What happens if you buy a new house first and then sell your old one?--G. Q.

A: The homeowner in your example also would be entitled to the tax postponement, or “roll-over” in IRS parlance--as long as the old home is sold within two years of the new home’s purchase.

If it takes longer than two years, you lose the tax deferral on your profit. So, if you sold your house for a $100,000 profit but did not meet the two-year deadline, you would have to pay the tax on $100,000.

Those at least 55 years of age could avoid a tax bill even if they did not meet the deadline. All they would have to do is claim the one-time exemption from taxes on the sale of a home, an exemption that every taxpayer over the age of 54 is permitted to take once.

If you find yourself approaching the sales deadline with no prospects in sight, there may be an answer. Some accountants suggest forming a corporation and selling the house to yourself rather than getting stuck with a big tax bill.

The IRS, in letter rulings to individuals, has advised that it does not care who the buyer is--only that there is a record of a sale within two years after the replacement home was acquired.

Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Business section, The Times, Times Mirror Square, Los Angeles 90053.