A couple of month ago IRS sent me a worksheet to recalculate deduction since I have refinanced my house in Dec 2010 and they had some questions. After filling out the worksheet and applying IRS allowed deduction on the worksheet, it came out that I did not deduct enough and am owed money. I have sent IRS all the documents they requested and they have acknowledged the receipt of those documents. Today I get a letter from the same guy with his adjustment calculations of my tax return completely wiping out the Home Mortgage Interest deduction and telling me I owe $26000 with penalties. Has home mortgage interest deduction been disallowed in 2010 or is that IRS harassment and or incompetence?My wife got home and looked at the document. She is an EA. It seems that auditor is quite incompetent and does not understand or does not want to understand the documents in front of him (he requested them and got them). Is there a way to request a new auditor on the bases of incompetence? Apperently he demands to see one year worth of payments (during 2010) on the loan that originated in December 2010. He is in posession of re-finance package and closing documents as well as 12 payments on original loan and 1 payment on a new one (closed mid December).