IRS Kicking Back Returns With This Mistake

Tax season isn’t even officially over yet, and the IRS is already kicking back a record number of returns. Fasten your seatbelts. We’re in for a bumpy ride.

There are a number of reasons why this year (2010) may very well be one of the worst when it comes to audits. In a second, I’ll tell you what the issue is that is already creating problems from some tax filers. But first, let’s look at why this year is so rough.

Don’t get me wrong. I’m happy that Congress came through with some retroactive tax cuts. But why did they have to wait until Dec 17th to turn it into law?

The IRS had to reprogram its computers. Tax software companies had to do the same. (BTW, you might want to verify you’ve got the most current copy if you’re trying to do-it-yourself this year.)

The last minute changes meant the IRS has to re-do forms. We finally got the last of them on 3/11/2011. If you filed your return before then, you might have used the wrong form.

The IRS doubled its audit force in 2009 and they’re still aggressively hiring. All of those auditors are looking for something to do.

And this one leads us to the problem that is causing people to get their returns kicked back – the First Time Homebuyer’s Credit.

There are some firm and fast rules for getting the credit. Miss one and you could be waiting a long time to get your money (Maybe forever.)

You must use Form 1040 (not Form 1040-A or Form 1040-EZ).
You must attach Form 5405.
You must paper file (not e-file) your return.
You must include documentation that shows you purchased the home within the application times.
If applicable, also include documentation of the sale of your previous principal residence.

 

For almost 30 years, Diane Kennedy has been saving her clients thousands and tens of thousands of dollars in taxes each and every year. She’s studied and analyzed over 1.5 million pages of tax law and she’s earned the reputation of a top tax strategist through her discovery of thousands of legal tax loopholes. As the founder and owner of USTaxAid Services, a leading full-service tax consulting firm and USTaxAid, an online tax education site, Diane leads the research and development of innovative tax strategies that allow individuals to proactively manage their tax planning. She is also the co-author of the  best-selling book, "Smart Business, Stupid Business."