Filing Snafu Could Delay Up to 600,000 Tax Refunds

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A filing error has resulted in the delay of up to 600,000 tax refunds — among them students who need the money to pay for books and the tax receipt to apply for financial aid, the IRS said Tuesday.

One of them is Franccesca Parodi, a 26-year-old interior design student from Seattle, who filed her taxes early this year at her neighborhood H&R Block office. She paid about $150 for 30 to 40 minutes with a tax consultant.

When the $2,500 refund Parodi was expecting didn't show up, and the IRS Where's My Refund? feature online said her tax return was still being processed, she went to the H&R Block website to see if others were having the same problem. That's when she learned that Form 8863, relating to student tax credits, had been filed incorrectly.

On H&R Block's blog and Facebook page, she saw thousands of angry customers sounding off. She wrote that she, too, was frustrated.

H&R Block explained that the form had changed, and that in previous years, five lines on the form could be left blank for a "no" answer. Starting this year, preparers must enter an "N" in those fields or risk a delay. The tax-filing company said it learned about the tax form change after it had submitted hundreds of thousands of tax returns. The IRS said it was aware of the problem and it is continuing to review the situation and work with "affected software companies to assist in the processing of those tax returns."

In separate statements on Tuesday, H&R Block and the IRS said those who submitted tax returns between Feb. 14 and Feb. 22 would receive their tax refunds within 21 days — not eight weeks as stated in an earlier letter from the IRS to those impacted.

"We want to assure the impacted clients that we are doing everything we can," H&R Block said in a statement. "The IRS has informed us and other impacted providers that they are currently processing returns."

In a statement, the IRS said: "While the number of tax returns affected is around 10 percent of the total returns claiming the credit, the IRS continues working aggressively to address this situation and hopes to reduce those projected refund time frames further."

About 6.6 million tax returns include Form 8863, although only about 10 percent are affected, according to MarketWatch.

For Parodi, 26, the new timeline for her refund not good enough. Financial aid officers at her school told her that if she didn't file her return from the IRS, she would likely not receive grants to pay for school. Her part-time waitressing job at Kells Irish Restaurant & Pub in downtown Seattle brings in less than $20,000 a year, and she worries she won't be able to afford school this summer.

Hoping for more answers, she returned to the H&R Block office Tuesday, where she was assured the problem had been fixed.

Parodi said she is overwhelmed, but that she doesn't want to demand a refund from H&R Block because she is preparing for finals.

"They're not assuming responsibility, they're saying it's the IRS," she said. "I'm like, 'What do I do? Stay here and fight with these people all day or go home and do my homework?'" she said.

H&R Block, the nation's largest tax preparer, posted updates to its Facebook page and apologized on its blog to individual filers who have complained.

H&R Block isn't the only tax filing company that has been in trouble recently. Last week, the Minnesota Department of Revenue warned taxpayers against using TurboTax to file their state income taxes, finding 10,000 returns had problems, according to the St. Paul Pioneer Press.

In a terse statement Friday, the Minnesota Department of Revenue said it would stop processing tax returns filed through Intuit — which operates TurboTax — if the problem is not fixed.

As for Parodi, she says she'll either file by pen and paper next year, or she'll ask a friend for help.

"Nobody told me anything," she said. "They didn't even call us. I had to go to their office and talk to them, ask what's going on? I'm very unhappy."

CLARIFICATION: The story has been updated to clarify that H&R Block was not the sole software company affected by the problem.