H&R Block glitch delays tax refunds

Michelle Singletary
Columnist March 15, 2013

What would a tax season be without confusion and last-minute changes?

First up, a lot of H&R Block customers are irate about a glitch that will delay their federal tax refunds by weeks.

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

For days, H&R customers complained on Facebook that they weren’t getting a clear explanation as to why their refunds were delayed. As it turns out, there was a problem with returns that included Form 8863, which is used to claim two higher education credits — the American Opportunity Tax Credit and the Lifetime Learning Credit.

“H&R Block has confirmed with the IRS that there was an issue with a limited number of software company products that affected some tax returns filed between Feb. 14 and 22, 2013,” the company said.

The IRS says the glitch has affected about 10 percent of the 6.6 million total returns claiming the credit. “The problem resulted in those tax returns requiring additional review,” the IRS said.

H&R Block won’t say how many of those returns were prepared by the company, noting that the language in the IRS statement said the problem involved a “limited number of software company products.” Yet it’s been mostly H&R Block customers who are taking to the Internet. A “Demand H&R Block Refund Our Filing Fees” page has been created on Facebook.

“I’m not able to divulge how many of our clients are impacted, but we are contacting them all directly,” H&R Block spokesman Gene King said in an e-mail.

King said that any problems that occurred with Form 8863 have been fixed and that H&R Block clients don’t need to take any immediate action.

“It’s important to note that the tax returns were prepared accurately,” he said. “The error occurred in e-file processing.”

The IRS issued an alert to tax professionals Feb. 20, pointing out that they had noticed instances in which certain checkboxes on Form 8863 were not correctly completed, causing processing delays. Software packages needed to be modified to correct the issue, the alert said, adding, “Please communicate this information to the practitioner community to avoid delays in processing returns.”

The IRS said that in a situation like this, it can typically take up to eight weeks to resolve the problem. But the agency is working to speed up the process. However, it “may need as much as four to six weeks” to get refunds to taxpayers.

“We are taking special steps to help taxpayers,” the IRS said in a statement, adding that it was “working aggressively to address this situation and hopes to reduce those projected refund time frames further.”

The delay in processing the returns may also affect families applying for financial aid through the Free Application for Federal Student Aid, or FAFSA. If you are affected, you can enter your tax return information manually and later update it once your return has been processed.

The IRS said taxpayers who filed a Form 8863 with their tax return during the time period in question can check “Where’s My Refund?” on www.irs.gov. “If taxpayers have not received a refund date and filed during the affected period, they should contact their software provider to determine if they may be in the affected group,” the agency said.

Note that there is no need to check “Where’s My Refund?” more than once a day. The system is usually updated each night.

Okay, on to another issue for this tax season and next.

If your lender cancels or forgives your mortgage debt, you generally have to pay tax on that amount. The lender is required to report the amount of canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

But during the housing crisis, when foreclosures skyrocketed across the country, Congress passed the Mortgage Forgiveness Debt Relief Act. It was designed to provide at least some relief to people who had lost their homes.

The act was scheduled to expire in 2012. But as part of the last-minute deal to avoid the “fiscal cliff,” the debt relief was extended for one more year, until Dec. 31, 2013.

The law allows people to exclude income from the discharge of debt on their principal place of residence. In addition to foreclosure, debt reduced because of a mortgage restructuring also qualifies for relief.

The maximum qualified debt you can exclude under this exception is $2 million, according to the IRS. The limit is $1 million for a married person who files a separate tax return. If you qualify, report the excluded debt on Form 982. Submit the completed form with your federal income tax return.

Close to 230,000 taxpayers have claimed a discharge of qualified principal residence debt for tax year 2010, the most recent year for which there is data, the IRS said.

Ah, just another complicated tax year.

Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

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