Tax glitch delays refunds, angers Block customers

Kansas City StarMarch 13, 2013 

H&R Block is the biggest tax-preparation service in the United States — and this year that may not be such a good thing.

From Feb. 14 to 22, the Kansas City-based firm made errors in possibly hundreds of thousands of federal tax returns by not properly following a change made this year in how to fill out Form 8863. That form is used to reduce taxes by giving taxpayers a credit for certain educational costs.

Now H&R Block customers throughout the country whose returns included that mistake are hearing that their refunds will be delayed by several weeks. Many of those affected are students or parents who need the money for books or their tax receipt to apply for financial aid.

Compounding the problem and angering many Block clients, many received the bad news from the Internal Revenue Service, which sent out letters telling them their returns needed to be corrected.

The mistake is affecting about 10 percent of the 6.6 million tax returns containing Form 8863, IRS spokeswoman Michelle Eldridge said Tuesday. She didn’t estimate how many of the misfiled returns came from Block, but the company was bearing the brunt of complaints.

Block first told customers of the problem on Thursday, and then only in a brief post on its Facebook site that apologized for the frustration the problem was causing.

Since then, more than 5,500 comments, many of them highly critical, have been posted on its Facebook page.

One Facebook user, Dustin Munson, wrote: “I have been patiently waiting for my education credit refund, which I need to pay tuition bills. I was aghast to learn of the delay ON THE INTERNET and not from communication issued from your company as soon as the problem was discovered.”

A followup post from Block on Friday assured customers that if they had already responded to a letter from the IRS, or had not received such a letter, they didn’t need to do anything further. Those who hadn’t answered the letter were encouraged to call Block’s customer service line.

Some public relations experts also were critical of H&R Block’s reliance on Facebook to get the word out.

When asked why Block didn’t directly get in touch with customers affected by the mistake, Gene King, Block’s director of corporate communications, declined to comment.

The postings weren’t any help to Benjamin Moore of Kansas City. He said Tuesday, “I’m not on Facebook and I never saw it. The first I heard about it was when we learned about it from the IRS.

“We then went to the H&R Block office and were told we didn’t have to do anything. They explained the delays about the educational tax credit, and now we’re looking at another six weeks for a refund.”

The IRS notice said refunds could be delayed six to eight weeks, but one Block posting said “we are assured it will not take that long.”

The IRS changed Form 8863 this year to comply with stricter reporting requirements from Congress, and the changes were noted on instructions to the form.

King said previously a tax preparer could leave boxes blank for some questions on the form, and if neither “yes” nor “no” was checked, the IRS considered that to be the same as answering “no.”

“But the IRS evidently needed a response,” King said. “Its computers read the two blank boxes as an error and held up processing tax returns.”

The first IRS alert to tax preparers that Form 8863 was not being filled out correctly came on Feb. 20. Block said it detected the problem Feb. 22, but the company didn’t alert customers until Thursday.

Block’s first Facebook posting said only: “As many of you are already aware, some clients who claimed certain education tax credits on Form 8863 have received notices from the IRS. We are in contact with the IRS to clarify the situation. We appreciate this may cause some problems for our clients and we apologize for the frustration it may be causing. We will continue to update clients as more information becomes available.”

A spokeswoman for Intuit, the maker of competing TurboTax software, said the company was not having the problem. But Forbes reported that delays and errors related to form 8863 were not restricted to H&R Block, though it was getting most of the complaints. Block handles millions of returns — more than 22 million last year.

A sampling of comments on Block’s Facebook page showed the limits of social media when it comes to informing people.

“Not all H&R Block Customers have access to Facebook,” wrote Tracy Bryant-Davis. “Why aren’t we receiving EMAILS or phone calls to advise us and keep us abreast of this 8863 problem and any other issue that is causing delays of refunds??”

Students or their parents must file Form 8863 get a student tax credit under a law called the American Opportunity and Lifetime Learning Credits.

The credit reduces a tax bill dollar for dollar. It’s equal to 100 percent of the first $2,000 of qualified expenses and 25 percent of expenses over $2,000. The maximum is $2,500.

Having a completed federal tax return also is an important part of completing the Free Application for Federal Student Aid, better known to millions of parents and college students as FAFSA.

On Block’s Facebook page, Monique Brown wrote:

“I really and truly just want to cry. Spring Break ruined, mine and my son’s birthday ruined and I also can’t file FAFSA!”

Late Monday, Block posted another Facebook entry noting: “If an affected client applies for financial aid through the FAFSA program and is waiting for their return processing to be complete in order to finalize the FAFSA application, there are manual steps they can take that will allow their FAFSA application to proceed while their return is still processing.”

It said that in that case, the Department of Education suggested manually entering the tax return data on the financial aid application online, and then returning later to the FAFSA form online and updating the information once the tax return had been processed.

Public relations experts weren’t surprised that people were upset by the tax problem, but they were taken back by Block’s reliance on Facebook.

“I’m shocked,” said David Guth, an associate professor at the University of Kansas who has written three public relations textbooks. “They should have alerted everybody the moment they knew they had a problem.

“Facebook is a great social media site to keep up with friends and post pictures, but when you mess up a tax return, it requires a more formal communication than this.”

Glen T. Cameron, who holds the Maxine Gregory Chair of Journalism Research at the University of Missouri, said Block’s reputation could suffer over the long run.

“It’s not right for tens of thousands of customers, and it’s not the right strategy in terms of managing a crisis,” he said. “It sends the wrong signal in terms of reputation and confidence.”

Guth agreed.

“They say 80 percent of your business comes from 20 percent of your customers,” he said. “This doesn’t engender a relationship when you have learned about the problem this way.

“And you don’t screw with people’s money.”

The Star’s Mark Davis contributed to this report.

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