Class-Action Suits Bring Further Woes to H&R Block

A number of taxpayers who used H&R Block to file their federal income tax have banded together to file several class-action suits against the company.

Last week H&R Block announced the delay of refunds for as many tax returns that included a form related to a student tax credit deduction.  The form in question, Form 8863, allows a taxpayer to reclaim 100% of the first $2,000 in eligible student expenses and 25% of each dollar of eligible student expenses thereafter.

Previously the eligibility line of Form 8863 could be left blank and still indicate to the IRS that the taxpayer qualified for the student tax credit.  Starting with the 2012 tax year, the IRS began to require that an “n” be entered in the eligibility line to indicate qualification.  However, Form 8863 in H&R Block’s tax software still permits the line to be left blank, which is resulting in the delay of refunds.

Only those who filed Form 8863 between February 14 and February 22 with a blank eligibility line will experience the delay.  However, this includes approximately 600,000 taxpayers.

Attorneys representing taxpayers in California and Minnesota have filed two separate class-action suits.

“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,” noted David Cialkowski, an attorney with Zimmerman Reed who filed the class-action suit in California on behalf of Juan Ortega.  Cialkowski indicated that more than 500 individuals have contacted Zimmerman Reed related to the H&R Block tax software error.

The class action suit alleges that H&R Block was negligent in their failure to properly update their tax software and they violated consumer protection laws.  The suit notes that those impacted by the delay are experiencing additional stress as they seek to make ends meet financially until they receive their refunds.

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

The damages that will be sought in the class-action suits have not been announced as the attorneys are still performing discovery.  Playing into the amount of damages is the impact the late tax returns will have on students seeking financial aid from the federal government, as an accepted tax return is required as a part of the filing process.  Students affected by the delay in receiving their refund will now miss the filing date for financial aid.

“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,” noted a spokesperson from H&R Block via e-mail.  “It’s important to note that the tax returns were prepared accurately.  The error occurred in e-file processing.”

The spokesperson went on to also note that the error on Form 8863 was corrected after February 22.

Bill Cobb, the CEO of H&R Block, posted an apology on H&R Block’s web site 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.”

Cobb also noted that they are working with the Department of Education to assist those who will miss the normal cutoff for seeking student financial aid.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.