The Internal Revenue Service said Wednesday that it has observed problems with the filings for education tax credits that could be delaying processing of the tax returns.
“We have observed instances in which the Form 8863, Education Credits, attached to the Form 1040 and 1040A is not completed correctly,” the IRS said in an email Wednesday. “These instances are causing downstream processing delays.”
The IRS noted that it has experienced the following two conditions: (1) Form 8863 Part III Line 25 Yes or No checkboxes are not completed when required, and (2) Form 8863 Part III Line 26 Yes or No checkboxes are not completed when required.
The IRS pointed out that the Form 8863 instructions specify that if taxpayers have checked “Yes” on Line 24, they should go to line 25. On line 25, taxpayers should check “Yes” if the student completed the first four years of postsecondary education before 2012. Otherwise, they should check “No.”
If the taxpayer has checked “No,” they should go to line 26. If they have checked “Yes,” the student is not eligible for the American Opportunity Credit, and should therefore skip lines 26 through 30 and go to line 31.
On line 26, the taxpayer should check “Yes” if the student was convicted, before the end of 2012, of a federal or state felony for possession or distribution of a controlled substance. If the taxpayer has checked “No,” they should complete either lines 27 through 30 or line 31 for this student. If they checked “Yes,” the student is not eligible for the American Opportunity Credit and should skip those lines.
The IRS noted that it is working to implement business rules to reject the incorrectly completed returns, but has not determined the date for the new business rules.
In the interim, the IRS is requesting that software packages be modified to require completion of the correct boxes on lines 25 and 26 when appropriate. In addition, the appropriate checkboxes should be completed for lines 23 and 24. The IRS also asked to communicate this information to the tax practitioner community to avoid delays in processing returns.
21 Comments
It is not true that all colleges will send out proper 1098T forms automatically, although by law they are required to. Every tax preparer in this town knows a particular community college WILL NOT give students a 1098T unless they practically camp in the financial aid office and threaten to sic the IRS on them. And it happens year after year. Just like most employers properly give their employees W-2's, but some just won't, there are "bad" colleges out there as well that simply will not face up to their legal paperwork responsibilities. And all we as preparers can do is simply work around them.
Posted by: olivertax | February 23, 2013 11:51 AM
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I have little good to say about H&R (having worked very briefly for them) but the extra charge to guard against preparer error was, when I worked there, for a policy that would pay not Penalties and Interest (which was already covered by the fee) but the actual tax payback amount that they had mistakenly caused - up to $5,000. This was called the Peace of Mind Guarantee and was very similar to Jackson-Hewitt's "Gold Guarantee." I suspect what SNAFU's customer was describing was that same insurance.
Posted by: jadas_priest | February 23, 2013 9:27 AM
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As for the EIC. I think the IRS should not let you get it unless the taxpayers has an W2 or a 1099M form. That will cut out all the scammers (taxpayers)with kids trying to get the EIC knowing that they haven't worked. Also the so called new updated 8863 form, that's a joke, too. You shouldn't get the education credit unless you have an 1098-T form. I have alot of people telling me that they went to college but they did not get an 1098-T form. What a crock. These are the kind of people you want to avoid doing taxes for. And the IRS wants to blame it on the tax preparer by giving them big fines. How can they go from $100 to $500 the next year for fines. They should be taken to court for that, too. This is just my opion!
Posted by: tapp | February 22, 2013 11:05 PM
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Hi, Im an EA. Tough year for some. I worked for HRB and found all who I encountered excellent tax pros. In my town, newbys who did not pass the HRB school did not get hired, and if they could not handle the load, they did not last long. If I were going to pay to have my tax return done, I would highly recommend HRB. I did not stay with HRB, because of add'l product sale pressures. The ins. is great for Preparer mistakes, and very great for the taxpayer when the Preparer makes a mistake. However, I always felt icky high selling a taxpayer a product that reaped no benefit unless I made a mistake. As to the IRS, Ive always been peeved the IRS uses the Preparer as an investigator for the IRS without compensation but with lots of costly Due Diligence and Penalties. Because of this, I stopped preparing tax returns and now am in the business of teaching taxpayers how to prepare their own tax returns. Sadly for EIC clients, I wont touch them because of the IRS. A sole proprietor is too open to IRS sanction. Once again, law punishes the many good, because of a few bad. Enough paper already!
Posted by: fannymcintosh | February 22, 2013 8:18 PM
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Hey Everyone,
I am no fan of the IRS but the EIC large refunds are being held up because this is the largest area of fraud. We can thank the quacks for that. Also, there is no punishing the preparers fot eh RTP issues. The IRS announced two years ago that they were holding up large refunds to review them. There is no float. Also, IRS was burned by their internal audit who discovered a massive amount of improper education credits being allowed, thus, the mess with the form. We can thank the quacks again for this one also. Still this is no excuse. Let us hope that they are not laid off. It will be a real mess then.
Posted by: ZOARITE1977 | February 22, 2013 3:33 PM
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Did anybody notice the 7 to 10 day for direct deposit is now replaced by 10 to 21 days. I e filed hoh 2 children EIC child credit on Jan 31st she still doesn't have her refund direct deposit. IRS website says now it will be direct deposit on Feb 25th thats a whole 26 days from when i filed the return. The only direct deposit I have seen are on single men with no dependents. Any sizeable refund the IRS is holding up. Think the irs is playing the float?
Posted by: bzavadil1 | February 22, 2013 1:37 PM
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As for the education credits, one thing that is confusing the parents of college kids is the 1098T....it reports the Spring semester of 2011 and fall semester of 2012....when I asked parents what was exactly paid, they are clueless because most times, it is paid w/ loans and they don't understand that. I require that the students submitt an accounting of the Dec bill from 2011 and the August bill from 2012 and sometimes if necessary, the Spring 2013 accounting so I know exactly what was paid w/ scholarships/grants/loans, etc. and what was actually paid in 2012. A pain but necessary for me to complete the return. Then asking for additional expenses and add the QTIPs, etc.....what a mess! Easy solution....get rid of EIC and Education credits and just give all a certain credit that is the same for all. That would eliminate a lot of fraud because only credits for one social security number.
Posted by: link1time | February 22, 2013 10:57 AM
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I had a young person come into my office this week w/ one W-2 and one 1099 misc.....he had helped a friend bale hay this past summer and was issued a 1099 misc.....H & R Block told him it would cost $250 to prepare the return because they would have to do Sch C and R due to his 401K. I did the return, put the 1099 misc (since he is not in the business of helping farmers) on line 21, reported it on SE since it was over $400 and charged the poor taxpayer $60. Took me 10 minutes from start to finish.
Posted by: link1time | February 22, 2013 10:51 AM
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Doesn't anyone get what's going on? (Light bulb! . . . Opera singing at dawn! . . . Wide-eyed expression at realization of truth!) The IRS is "punishing" tax preparers because the courts ruled that RTRP's cannot be required to take that stupid, inane, redundant competency test, as well as the continuing education (although some of us in a few states have had the continuing education requirement for years). The IRS is acting like a little kid and taking their ball and running home. The longer they can delay us, the harder it is to get the returns out on time. That'll teach us, huh? Especially corporate returns, which apparently we can't efile until after March 1st, and their due March 15th. In other words, the IRS can delay the start of tax season by two months, but won't extend the due date. Two weeks to prepare all corporate returns. (Gonna run out of midnight oil, me thinks). And no, I'm not going to have the returns finished and ready to go, because I don't trust that the IRS isn't going to "update" some of the returns at the last minute. Redo!
Posted by: catkimball | February 22, 2013 10:43 AM
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The comment about H&R Block was inaccurate and a cheap shot. Seriously, if they did this would they be in business? I worked for H&R for several years, not this year, and they are all about talking to folks about dependents. H&R is the first stop for those that want to claim dependents that aren't actually dependents. Then, those folks walk out and amend their stories and go to the next sap they can find. Eventually, bad things happen. If you are lucky it happens shortly after the return is filed. If not, three years of penalties and interest is quite a bit on top of fake EIC. All the retail tax places know about this. The person you reference could have gone to the manager or EA that works in that office and didn't...wonder why? No, what H&R covers as standard is all expenses related to the tax itself. If interest and penalties accrue because of misinformation that you gave them...you MAY have to pay that without the insurance...you pay nothing for their mistake, never have. Else, they would not be in business. Many CPAs have insurance that is similar although they do not get as many scammers as H&R does in a single year.
Posted by: radtaxer | February 22, 2013 10:30 AM
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Interesting snafu -- Software programs aer reviewed and the calculations and forms approved by IRS. So this is an IRS created problem.
Competent, sane computer program design and implementation would NOT have to have delayed so many forms this tax season. (Button A activates Scenario 1 and Button B activates Screnario 2 ... in short, simplified but doable and should have been in place.) The only tax returns that should have experienced delays this year are the over $400,000/$450,000 crowd.
The IRS, as well as the rest of us KNOW that Congress acts late. The changes, delays are due to IRS "fine-tuning" initiated by the IRS. Returns with profitable rental activities are being held up from filing because in its "infinite wisdom" the IRS requires a Form 8582 even if there are no losses to justify deducting.
Posted by: QualityCounts | February 22, 2013 10:09 AM
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SNAFU I do the same thing you do if their is an error I have made on the return. In 15 years of tax prep there has only been one and it wasn't my error but theirs. I still gave them credit for penalties - good customer service. Charging someone in case I made a mistake seems a bit unethical.
Posted by: mrsgixxer | February 22, 2013 9:05 AM
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SNAFU, i'm with you. if i goof up i offer to reduce next year's fee for services by the amount of interest and penalties accrued due to my mistake.
Posted by: phdesmond | February 22, 2013 9:02 AM
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if you don't know enough tax law to understand the question then you should not be preparing taxes for pay. not the best english but so what? we are supposed to know the AOC is limited to 4 years max.
Posted by: wingedunicorn0205@hotmail.com | February 21, 2013 5:47 PM
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Q 23 says for "any 4 prior tax years" that is a four year period not "any" year in a four year period. (lousy English by IRS forced to prepare forms after Congressmen waiting for the election to go their way and it didn't
Also stop complaing about tax software. If you don't have the knowledge, stop relying on the software companies to do your real job instead of being an overpriced key punch clerk (or should I say jerk)
Posted by: Janosik | February 21, 2013 4:03 PM
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I just got off the phone with an IRS agent who I believe doesn't know anything more than what the Pub 970 that she's reading from says. Either way, read Pub 970 and the instructions for 8863 to be sure your taxpayer (and/or student) meet the qualifications to be eligible to take the American Opportunity Credit. If so, make sure that you mark line 23 of the 8863 as a no, if you believe your taxpayer is eligible for the American Opportunity Credit. The word "any" is what throws the question off. The pub 970 table puts the question more clearly:
Was either the American opportunity credit or Hope credit (or a combination of both) claimed in at least 4 prior tax years for this student?
Why they didn't word the question on the form in the same way, is beyond me! Either way, you want to say NO to this question if you believe your client to be eligible for the American Opportunity Credit. Hope this helps! I've been doing returns for over 30 years and I know the wording threw me off enough to recheck the instructions to make sure I hadn't missed a change I was unaware of.
Posted by: gal31658 | February 21, 2013 3:42 PM
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I am on hold with the IRS now. The way the question reads in the 8863 form, line 23 contradicts the rules in table 1 of the instructions. The credit had always allowed that it could be taken for up to four years on qualified education expenses which is also what the instructions say. The form leads you to believe and causes tax software to reject eligibility for the credit if you've taken the AOC for even one year! Something isn't right here. If I am misunderstanding the rules of this credit, someone please let me know! When I saw that my software was rejecting the credit and forcing me into taking the Lifetime Credit, I went back to the form instructions to see if the rules had changed. They haven't, so why does the form prevent eligible taxpayers from getting this credit for more than one year?
Posted by: gal31658 | February 21, 2013 2:26 PM
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Just to prove my point. Someone came to my office a minute ego, with one of my clients, and told me he went to H& R Block for his taxes. He had one W2, two children.
No questions were asked about the children,(one child even has a different last name), he was charged over $300.00 for the return plus an additional charge ($49.00) to cover the prepares errors should she have made any and should the tax payer have to pay a penalty because of it! I don't know of nay Tax Preparer, CPA, EA or anyone else ever charging for preparer's E&O! (the attorneys probably do, but I am sure it is not a separate charge!) I don't know about the rest of you, maybe I am just naive or too honest, but I assure my clients that, should I make a mistake that will cause them additional taxes, penalties and interest, they will be responsible for the additional taxes but I will pay for the penalty and interest if the mistake was due to my lack of attentiveness and it was not due to the information they gave me. Does anyone else do that? Isn't it this the reason why they sell E&O Insurance? It's nice not to have to ever use it, but it is there just in case...Everybody can have a bad day...I really would like to have someone's take on this. Thank you
Posted by: SNAFU | February 21, 2013 2:14 PM
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I agree with dawnsbiz.
I don't understand why the IRS, when complaining about all the boxes not being checked on the EIC forms, the Education Credit and all the other forms, is blaming Professional Tax Prepares regarding those incomplete forms and saying they are the reason for the delayed refunds!
My software program will not allow the return to be e-filed if any of the boxes required to be checked are not checked as required, regardless of which form we happen to be preparing... All Professional Paid Preparers I know use software to prepare taxes....so, how can they e-file a return that is not completely checked? Could it be that those "preparers" who are making those mistakes work for the Tax Stores, whom I know for a fact, are not asking all the questions required? They prepare their own software. ...so you go from there!
Posted by: SNAFU | February 21, 2013 1:36 PM
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College students who can't follow simple direction should probably be denied the Education Credit.
Posted by: gregkyte | February 21, 2013 12:56 PM
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Thank you so much for your information. Hopefully the software programs will get updated to require that information be done properly or it will not eligible to efile. I believe, for me at least, we depend more on our software to be correct than depending on the IRS to get it right!
Posted by: dawnsbiz | February 21, 2013 10:52 AM
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