The Internal Revenue Service said Wednesday that it is taking “special steps” to expedite a review and remedy of a filing error with Form 8863 that has caused a delay in tax refunds of possibly six weeks.
An estimated 600,000 returns processed by H&R Block are affected.
The filing issue has to do with Form 8863, on which parents or students can claim valuable tax breaks including the popular American Opportunity Tax Credit, which is tied to tuition and other college expenses and is worth up to $2,500 per student.
Angry clients of H&R Block expecting that credit or other education tax breaks from Form 8863 flooded the tax preparer’s Facebook page with complaints, some seeking refunds of their tax-preparation fees.
The IRS said such a problem would normally take up to 8 weeks to resolve, but it is working to speed up the review in order to send out refunds in less than 6 weeks.
The IRS said the filing issue affected some software company products that submitted Form 8863, Education Credits, between Feb. 14 and Feb. 22. The problem resulted in those tax returns requiring additional review by the IRS.
The IRS said it “is continuing to review the situation and working with affected software companies to assist in the processing of these tax returns. Typically, the review process for a situation like this takes up to 8 weeks. We are taking special steps to help taxpayers. This means the IRS may need as much as 4-6 weeks from this date to issue a refund to the taxpayer.”
H&R Block, the nation’s biggest tax preparer, initially confirmed on March 8 that it had encountered filing errors with Form 8863. It did so on its Facebook page.
But the IRS detected problems soon after it started processing Form 8863 in mid-February, and it issued an alert to all tax preparation professionals on Feb. 20.
The filing snafu is affecting about 10 percent of the 6.6 million tax returns with Form 8863.
H&R Block’s statement from its Facebook page:
“H&R Block has confirmed with the IRS that there was an issue with certain tax returns filed before February 22, 2013 that included certain education tax credits claimed on Form 8863. We have worked with the IRS to expedite a solution to this issue for all of our affected clients.”
H&R also said that clients who received the IRS notice stating it would take 6 to 8 weeks to receive a refund after this issue was resolved should not have to wait that long. “We are assured it will not take that long,” H&R said.
On Feb. 14, the IRS started processing Form 8863, Education Credits. This form is used to claim both the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.
On Feb. 20, just six days after it started processing the education credits, the IRS sent an alert to tax preparers, regarding issues with Form 8863:
“We have observed instances in which the Form 8863, Education Credits, attached to the Form 1040 and 1040A is not completed correctly,” the IRS said at that time. “These instances are causing downstream processing delays.”
The IRS noted that it has experienced the following two conditions: (1) Form 8863, Part III, Line 25, Yes or No checkboxes are not completed when required, and (2) Form 8863, Part III, Line 26, Yes or No checkboxes are not completed when required.
In the Feb. 20 alert, the IRS also requested “that software packages be modified to require completion of the correct boxes on lines 25 and 26 when appropriate.”
The IRS also urged tax professionals to “communicate this information to the practitioner community to avoid delays in processing returns.”
H&R Block said the filing problem is with returns filed before Feb. 22 because the IRS changed the way it processes some of the “yes” or “no” questions on the form, according to MarketWatch.com. Previously, leaving a field blank to indicate “No” on certain questions was acceptable. The IRS is now requiring preparers to enter an “N.”
Today, H&R Block is also advising clients who are waiting to complete the FAFSA (Free Application for Federal Student Aid) form for college financial aid.
There are manual steps they can take that will allow their FAFSA application to proceed while their return is still processing, H&R said.
The Department of Education suggests:
- If your return has not yet been processed by the IRS – you can manually enter the tax return data on the application.
- Return to the online FAFSA form to update the information when your return has been processed.
This information is posted on the Department of Education website http://www.fafsa.ed.gov/
The “fiscal cliff” legislation enacted Jan. 2, 2013 extended the American Opportunity Tax Credit for another five years until the end of 2017.
The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013.
Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:
- The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
- Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
- The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.