The IRS loaned the taxpayer $7,500

[Kestrel]

I don't recall seeing this theory before. It seems the tax court hadn't either.

In re: Gary P. Herring, Docket No. 29141-11S

According to petitioner, he entered into an enforceable contract with the Internal Revenue Service (IRS) when he filed his 2008 Federal income tax return with the attached Form 5405 [Repayment of the First-Time Homebuyer Credit], claiming the FTHBC. According to petitioner, the IRS agreed to lend petitioner $7,500 at 0% interest, repayable in $500-a-year installment payments for a term of 15 years. He further contends that the IRS ratified the contract by accepting his 2010 and 2011 Federal income tax returns, both of which included a $500 repayment of the FTHBC.

Simply put, he is incorrect on the point. We are aware of no authority that, in general, provides that items shown on a Federal income tax return can give rise to a contractual relationship between a taxpayer and the IRS, or specifically, allows a taxpayer to establish a contractual relationship with the IRS by claiming the FTHBC on a Federal income tax return. For the most part, an item shown on a return does little more than to establish, at least as of the date of the filing of the return, the taxpayer’s position with respect to that item. See Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979). Petitioner’s claim that he is entitled to the FTHBC because of a contractual relationship with the IRS is rejected.

[Quixote]

As the court noted in footnote 2.

Under the circumstances of this case, the first-time homebuyer credit, as
then allowable, resembled more a non-interest-bearing loan repayable through
increases to a taxpayer’s otherwise due Federal income tax for subsequent periods
than it did a credit

It wasn't that crazy an argument. I think the court should have pointed out that if a contract existed between Herring and the government, it was conditional on Herring meeting certain prerequisites. He didn't.