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IRS snafu leaves taxpayers, refunds in limbo for months


By Bob Sullivan

It’s perhaps the very definition of Red Tape. Four years ago, Congress decided that the IRS should get into the banking business, authorizing it to give out no-interest loans to first-time homebuyers. That put the agency in the position of both collecting loan payments and issuing tax refunds to the roughly 1 million taxpayers who took advantage of the program.

This year, the odd arrangement overwhelmed IRS systems, and an unspecified number of taxpayers have been forced to wait four months or more for their tax refunds. In fact, many are still waiting.

“This is frustrating for taxpayers, and it’s frustrating for us,” said IRS spokesman Terry Lemons. “We deeply apologize.”

Making matters worse, taxpayers caught up in the vortex say they’ve been promised delivery dates for their refunds repeatedly, only to be disappointed or to discover their returns have been placed back into “error” status.

One of those taxpayers who’s been tantalized by repeated promises of a refund check is Tia Littlejohn, who lives in Maryland just outside Washington, D.C. She and her husband are planning to use their expected $6,800 refund to pay for in vitro fertilization. She’s had to postpone the procedure twice because promised tax refund dates have come and gone without payment.

“At this point, I may have to just cancel it,” she said. “It’s really affecting our household. It’s very stressful.”

Her litany of hope and disappointment is typical.

“Our return was processed February 19 with a refund date of March 4. Well, March 4 came and went. Since then we have been waiting, every other week we have a different error code and the date of a possible direct deposit,” she said. “On April 27 they told me they told me my return was done and ‘out of error.’ Last week they told me I should receive it May 20. Then (Wednesday) I looked and it’s gone back into error again.”

Lemons said the IRS has devoted a lot of extra labor toward solving the problem and began manually processing the returns after the problem was discovered in February. The number of victims has been whittled to “a few thousand taxpayers,” he said.

More on the First Time Homebuyer tax credit

That’s cold comfort to people who have been waiting months for thousands of dollars. A Facebook group devoted to taxpayers caught up in the mess now has more than 3,000 members; they write daily about their mind-numbing frustrations. Many are now being told their returns won’t arrive until mid-June.

“I had a date, and a second date … and now I’m back at 1201 (error). My advocate said that it’s just sitting there. WTF IRS?” Jannae Leonard Powell wrote Thursday.

The Facebook page has become a support group for some, a place where taxpayers share tips on the best time to call , the best number to call and how to reach the most helpful phone agents. Littlejohn said many in the group have received frequent rude treatment, so they just hang up repeatedly until a “nice” agent answers.

“Some are very nice, but some are very nasty and basically say, ‘I don’t know what else to tell you. You are just going have to wait,'” she said.

All the taxpayers involved in the glitch took advantage of a one-time, misnamed First Time Homebuyer  tax “credit” offered during the 2008 tax year, a program that turned out to be a meager effort by Congress to prop up the then-imploding housing market. Homebuyers who took advantage didn’t actually receive a credit — they were granted what was essentially an interest-free loan of up to $7,500, to be paid back in $500 increments starting in 2010. Subsequent versions of the program granted homebuyers an outright tax credit, so the 2008 users already have something to moan about.

Read more @ MSNBC

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