Yes- if there is an overall liability the credit will be used to offset it, just like any other credit.

Also you don’t attach anything to the form (I think you mean form 5405) at the time of filing but you should retain the evidence to support your claim (e.g. closing statement) in case the IRS audits your return.

Of course they will. The IRS will ALWAYS offset any refunds for outstanding tax debts. There are a couple of ways that you can deal with such situations but you would need to start early in the tax year to do so. It’s way too late now to manage your tax liability for 2009, other than maybe to stop all tax withholding on your wages and wait until you file your 2009 return to claim the credit. That might get you a few dollars at this point but unless your income is very high — and it would have to be well over the cutoff limit for the credit for this to work this late in the year — there’s no way that you’re going to get $8,000 out of it.

The Form 5405 will be attached to a Form 1040-X. The 1040-X is the actual amended return.

Normal processing time is around 16 to 18 weeks. You can often knock that by a week or two if you attach a copy of the HUD-1 settlement sheet to the package.

if you are getting $8000, why do care if the IRS takes money you owe them? – you should be happy – at least they won’t be garnishing your wages to get it back

the form is 5405
and IRS has found a mountain of fraud in the FTHB credit
if you owe back taxes, more than likely it will be satisfied first and any left over applied to you FTHB credit
filing in 2008 was $7500 and in essence a loan that had to be repaid, filing in 2009 is a true credit of $8000, or depending on your income