H&R Block Taxpayer Glitch Leads to Lawsuits

Taxpayers that used H&R Block’s software to file their taxes this year are banning together in different class-action suits against the tax-filing company over a delay of their refunds.

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Last week, H&R Block reported up to 600,000 tax returns filed with its software could be delayed because of an issue with the student tax credit deduction. On Form 8863, filers can receive up to 100% of the first $2,000 of qualifying expenses and 25% of expenses higher than that amount. This year the IRS revised the form to require taxpayers to enter an “n” to confirm qualifications for eligibility. In the past, it was acceptable to leave the lines blank. Those who did not enter “n” will see delays, H&R Block says. Only those who filed between Feb. 14 through Feb. 22 are impacted. Now, two separate suits have been filed on behalf of taxpayers- one in California and another in Minnesota.

David Cialkowski, attorney at Zimmerman Reed, filed a class-action suit on behalf of customer Juan Ortega in the Central District of California Federal Court. The firm has been contacted by more than 500 people since the issue was discovered by the IRS, he says.

“Because of the error in the submission, which appears to be uniform in all of those, it’s their entire return that has been delayed. Not just the educational tax credits. This has caused a lot of issues.”

The suit alleges H&R Block breached its contract, was negligent and violates consumer protection laws. Cialkowski  says the glitch has caused his clients financial pain and stress to make ends meet. Until the discovery period of the suit, it is not clear how much in damages Cialkowski will seek on behalf of his clients.

“They were depending on this money and relying on getting it back as soon as possible,” he says. “It’s ironic, and I don’t mean to be amusing here. But the opposite happened and the people were deprive of the use of that money they were depending on.”

The impact the delay will have on families’ ability to file for student aid will also be factored into the amount of damages sought. To apply for federal government student aid, families need to show their tax returns and Cialkowski says his clients will now miss those dates.

H&R Block declined to be interviewed by phone, but says in an email statement that the IRS is continuing to work on the issue and client’s returns are being processed.

“Based on the recent trends, we believe that in the next 48 hours more than half of the impacted clients will have their refund, or a change in status declaring a refund date,” a spokesperson wrote. “It’s important to note that the tax returns were prepared accurately. The error occurred in e-file processing.”

The spokesperson also noted that any issues with Form 8863 have been corrected and the scope and number of impacted clients were not only those who filed with H&R Block.

H&R Block CEO Bill Cobb apologized to consumers on the company’s blog last week.

“I want to make it clear that this was absolutely not the fault of your tax professional; your return was prepared accurately. This was an issue with the form transmission. This was our mistake — and I sincerely apologize. I want you to know that we hear the frustration of those impacted by this issue loud and clear, and we’re working every avenue we can to get your refund to you as fast as possible.

He also said the company has been in touch with the Department of Education and anyone having issues filing a FAFSA should speak with them and consult “Guidance for Impacted Taxpayers,” which the Department released Friday.