IRS Kicking Back Returns With This Mistake

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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.

  1. Retroactive tax changes.
    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.)

  2. RS redid forms.

    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.

  3. More auditors then we’ve seen in a long time.

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

  4. Confusing rules on common tax credits.
    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.

This next Saturday, April 9, I’m going to be hosting Last Minute Tax Tips for 2010. Sign up now at It’ll be at 9 am PST, Noon Eastern.

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