Homebuyers left empty-handed after filing for tax credit

Homebuyers left empty-handed after filing for tax credit

OREGON CITY, Ore. – Local people counting on tax refunds from their 2009 returns are still waiting, months after they filed. The problem? They bought a house, and asked for the homebuyer credit. For some that means big delays.

What is the hold up? First, homebuyer-credit filers must turn in their tax returns on paper rather than electronically, and must include documents proving they bought the house. Then, someone at the Internal Revenue Service has to go over each homebuyer return basically by hand. That can take a long time.        

Robert and Brenda Steele bought a house in Oregon City in 2009. After all, the home buyer program made it seem like a good time to buy. They filed their return right away in January to get the $8,000 refund.

It is now June – five months later – and they have received no money back at all. "They say it's still processing," Robert said, "and it will be another six weeks."

The Steeles recently found out one problem with their return. With the help of the tax-advocate service, they realized the government made an error with one of their social security numbers. Once that was fixed, they were told they would get their money in two weeks.

Now, they've uncovered yet another problem: The IRS now contends the couple owned another home within the past three years and is not eligible. Yet, the couple says they have been renting this whole time.

They moved from a condo in Oregon City to buy their new home, which provided more space for their three children and meant an extra $8,000 for their bottom line through the homebuyer tax credit.

"It would be nice to have it," Robert said. "Yes it would."

It's money they plan to use to pay off their credit cards, and help with their daughter's wedding next month. However, each phone call to the IRS brings word of a new delay, the Steeles said.

We turned turned to the IRS for answers: Why the delay for people waiting for their homebuyer credits?

"That's a very good question," said Richard Panick, who works for the IRS in Seattle, in our phone interview. "I know that folks are concerned."

I.R.S. representatives said this year is different than past years with homebuyer credits. For 2008 returns, for example, taxpayers did not have to submit proof of home purchase. Without that proof, IRS investigators believe the agency gave out millions of dollars to fakers.

Now, the law has changed. Taxpayers have to file paper proof, and tax workers have to go over those papers one by one. Plus, an IRS spokesperson told us, many tax payers are making mistakes: "There are a lot of people who are doing things wrong."

Enrolled Agent Eva Rosenberg, with TaxMama.com, said not only are tax payers making those mistakes, but the IRS is too.

For example, IRS agents are losing documents and rejecting people who purchased homes with unit numbers – saying the numbers must be for rented apartments. 

"They have processed 800,000 [returns asking for the homebuyer credit] in the past year, a huge volume," Rosenberg said. "I don't think they were ready for this kind of volume."

The result? Local budgets blown, local plans on hold and local frustration growing every week without that refund.

"It's a process they should have figured out" beforehand, Rosenberg said.

Rosenberg said the Steeles' case is not isolated. Countless others were planning to use their $8,000 to pay bills or pay off loans for their down payment. They filled out Form 5405, and have been checking their accounts for the direct deposit. Still, week after week, they see nothing.

So, we've compiled this list of resources for those in that boat:

The IRS says:

  • If you filed for the Homebuyer Tax Credit with a 1040, it should take about six to eight weeks.
  • If you filed with 1040x (amended return), it could take about 16 weeks.
  • If your return is taking longer than the allotted time, call the IRS to find out why: 800-829-1040.
  • If your problems are not getting resolved, contact the Taxpayer Advocate Service: http://www.irs.gov/advocate/

TaxMama.com recommends:

        1) Send your return to an IRS street address, not a PO Box.
        2) Make sure you have all of the documentation and have filled it out properly before you send it in.
        3) Make copies of all of your documents.
        4) Send it via certified mail to get proof that you did send it in.
        5) Write a cover letter explaining any points that you think might become a question for the IRS.  For example, TaxMama.com says, in California, the HUD form doesn’t require a signature. You should have it signed anyway, and then include that information in your cover letter.