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Tax refund delays lead to lawsuits

By Kay Bell · Bankrate.com
Thursday, March 21, 2013
Posted: 4 pm ET

Two things about Americans are certain. They hate taxes and they love lawsuits.

The two are converging in this crazy 2013 filing season.

In the wake of a filing snafu by H&R Block that's delayed refunds and caused problems for some college financial aid applicants, customers of the country's largest tax preparation chain have gone to court for redress.

The first lawsuit was filed this week in the U.S. District Court for the Eastern District of Michigan. A day later, a similar suit was filed in the U.S. District Court for the Central District of California. Both pleadings are asking for refunds of tax-preparation fees and compensation for financial difficulties incurred by the delays in getting their federal tax refunds.

H&R Block would not comment on the pending litigation, but I suspect the apology issued before the suits were filed by the company's head honcho will be cited during any trials, if it goes that far.

In a post on Block's blog on March 15, company president and CEO Bill Cobb told customers, "We made a mistake when the tax return was sent to the IRS."

"I want to make it clear that this was absolutely not the fault of your tax professional; your return was prepared accurately," Cobb added. "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."

But judging by the legal action, things aren't happening fast enough.

FAFSA follow-up

Meanwhile, the Department of Education has weighed in on the problems faced by college students who are awaiting word on their federal financial aid packages. They filled out a Free Application for Federal Student Aid, or FAFSA, but schools won't grant the money until they confirm applicants' tax data.

In a statement posted on the Education Department's website, the federal agency "reminds" schools that they can collect paper copies of applicants' tax returns to make tentative financial awards to students.

Of course, no financial aid package can be finalized without official IRS documentation.

But, said the Education Department, "We would expect that using information from the paper copy of the tax return(s) that was actually submitted to the IRS should mean that when official IRS verification information is subsequently obtained there likely will be no differences and therefore, no need to adjust the tentative award, except to make it final and ready for disbursement."

Not to jinx anything, but I suspect if students -- or parents -- don't get the financial aid from the schools they prefer because of the hold-up with tax returns, we'll see some more lawsuits filed.

***

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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