Hundreds of thousands of taxpayer returns have been delayed by problems with how H&R Block and other software providers submitted a form claiming education credits to the Internal Revenue Service.
The problem, first reported by It's Only Money on Friday, could delay refunds by four to six weeks and require students applying for financial aid to take additional steps. It's triggered thousands of comments on H&R Block's Facebook page and an apology from the nation's largest tax prep company.
An IRS statement on Tuesday suggests the problem was not limited to just H&R Block customers, but it did not name other affected software providers. The number of returns affected amounts to about one in 10 of all returns claiming the credit, the IRS said. In 2010, 14.7 million taxpayers claimed the credit.
The problem affects returns filed between Feb. 14 and Feb. 22 with Form 8863, which is used to claim the American Opportunity and Lifetime Learning tax credits for college expenses. The IRS did not process Form 8863 until after Feb. 14 because of the last-minute fiscal cliff tax deal in Congress.
Form 8863 asks whether the college student had been convicted for a felony drug charge. H&R Block apparently left the "No" answer blank when the IRS expected it to be checked, customers say.
The company said in a statement that any problems with the form have been fixed. "It's important to note that the tax returns were prepared accurately," it said. "The error occurred in e-file processing."
It's not the only place where software providers are causing problems for tax collectors. Minnesota officials on Friday warned taxpayers not to use Intuit's TurboTax to file their state tax return because "multiple issues with their products" were causing filing errors, the St. Paul Pioneer Press reported.
The Oregon Department of Revenue has not experienced similar problems with software preparers. It's not impacted by the Form 8863 issue because it doesn't require it be submitted with to state returns, spokesman Dennis Thompson said.
"Overall, the processing season has been going quite smoothly for Oregon, especially considering the late changes on the IRS side and the late start," Thompson said. "We are processing electronic returns as they come in and are not carrying a back log."
The state has resolved issues with fax outages earlier this month that might have affected 650 taxpayers, Thompson said.
H&R Block's earnings already were impacted by the last-minute tax wrangling by Congress and President Obama, even before this problem arose. Last week, the nation's largest tax prep company said it lost $17.7 million during the three month period ended Jan. 31, the date the IRS began accepting tax returns. The IRS usually starts accepting forms in mid-January.
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