HARPTA filings fall into one of two categories: before closing and after closing. Prior to closing, reviews are done by the "Office Audit" division. HARPTA filings done after closing go directly to the processing with most individual income tax returns, however in some cases, some returns will be sent over to the Office Audit division for review.
The reviews done before closing are straightforward. For filers trying to get a HARPTA waiver, reviewers need to know that your home sale will not generate any tax, and that the home seller does not have any lingering tax obligations. If a filing can successfully communicate to the reviewer that this is true, a HARPTA waiver (a.k.a. "withholding certificate") is issued.
Reviews done to get a HARPTA reduction are similar, but rather than receiving a complete waiver of HARPTA withholding, the home seller gets a partial waiver. This is generally allowable only when the seller is in a situation where they have so little equity, were it not for a HARPTA reduction, they'd need to bring cash to closing.
Reviews done for an early, tentative refund are often originally routed with most other paper filed income tax returns. The difference, however, is that because of the large dollar amounts, requests for early, tentative refunds are often scrutinized very closely by the more experienced members of the review teams.
One of the most important differences between a Hawaii income tax return and a HARPTA return (whether it's a request for waiver, or an early refund) is that Hawaii returns are easy and they ask for almost nothing (maybe a W-2 if you are paper filing) to be attached. However, HARPTA returns are required to be supported by proper documentation and schedules, and the instructions on the form don't tell the preparer specifically what to include or how to present it! A successful filing requires knowledge, and that knowledge is obtained by experience.
As you can imagine, a pretty shocking percentage of HARPTA returns are rejected by the state. A little over 10 years ago when we first started to prepare HARPTA-related returns, we did sometimes find our filings get rejected, however after the first 2 or 3 rejections, we wised up. We created a database of reasons for rejection and this served as our guide of what NOT to do!
If you are looking for a CPA firm to help you with HARPTA, ask them the following questions:
1. Do you have a licensed CPA on staff?
2. If you do, does the CPA have audit experience?
3. How many HARPTA filings has your CPA done in their career?
Our answers: Yes, Yes (extensive audit experience), and over 700 filings to date
We hope you choose to work with us.