Tax Preparer’s Education Tax Credit Form ‘Glitch’ Produces Delayed Refunds, Class Actions

For many students, using the tax preparation software of H&R Block, one of the country’s leading corporate tax preparers, seemed like a wise and prudent move. Unfortunately, for several hundred thousand of them, a short-term flaw in the preparer’s software yielded an error on the taxpayers’ Education Credits form, leading to prolonged delays in taxpayers receiving their tax refunds. As a result, many H&R Block customers have filed a series of class-action lawsuits against the preparer, Fox Business reported.

Form 8863 permits taxpayers to assert their entitlement to certain income tax credits available under the American Opportunity and Lifetime Learning education credits. Using the form, a taxpayer may recoup 100% of eligible student expenses up to $2,000 and 25% of eligible student expenses for all amounts in excess of $2,000. The American opportunity credit has a $2,500 cap, while the Lifetime Learning offers a maximum credit of $2,000.

In previous years, the Internal Revenue Service would interpret a blank field to certain questions to be an answer of “no,” which indicated eligibility. Starting with the 2012 Form 8863, the IRS changed this policy, and began requiring taxpayers to expressly mark “no” or “n.” Block’s software, however, continued to allow users to complete Form 8863 with the eligibility questions left blank, for a period from February 14 to February 22. While the problem existed for only nine days, it affected the returns of approximately 600,000 taxpayers.

The erroneous forms caused the IRS to hold up the refunds of those taxpayers. With the agency originally estimated that the delay might last from four to six weeks, it recently revised that period down to two to four weeks. The delayed refunds are especially problematic for some students, as their taxes impact the students’ federal student aid applications, which require certain financial information from the students. Some Block customers chose to seek assistance through the civil judicial system. The customers filed a number of class-action suits, contending that H&R Block was negligent in failing to update it software properly to reflect the changes in the IRS’s requirements for filling out Form 8863. The customers claim that Block advertised “100% accuracy,” but offered them no compensation as a result of the error. The taxpayers claim they should have at least received a refund of the preparation fees they paid. The suits now seek unspecified damages, injunctive relief, attorney’s fees and litigation expenses, along with other relief, as deemed appropriate by the court.

Tax deductions and credits change frequently, along with the forms required to claim them, making it important that you rely on professionals who are up-to-date on the law and the IRS’s rules and procedures. To make certain you get all the credits and deductions you should, speak with the experienced tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. Our hardworking, knowledgeable attorneys and CPAs will ensure that your return includes everything to which you are entitled. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

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