The U.S. government’s main tax preparation unit, H&R Block is the target of a Class Action Lawsuit in the recent past. This involves accusations that the tax preparation unit improperly filed federal income tax returns for millions of taxpayers. At the same time, this group is alleging that the IRS is doing similar practices in state tax court filings as well. In both cases, the claims against H&R Block appear to be largely based on errors made by the H&R Block Group. These errors primarily relate to the complex nature of how taxes are calculated under federal and state tax law.
H&R Block Class Action Lawsuit
The main complaint filed in a Class Action Lawsuit against H&R Block focuses on the way in which the IRS determines taxable income. At present, the IRS considers an individual or married couple’s gross income at the end of a calendar year to be taxable. However, the internal revenue service has long been allowing taxpayers to exclude certain types of income for federal tax purposes, including self-employment income, interest, and dividends.
In the Class Action Lawsuit, the plaintiffs contend that the IRS has been using an overly complex and ambiguous method in computing tax liability on behalf of the United States taxpayers.
The method the Internal Revenue Service uses has long been described as a “computation of the taxpayer’s net income” in order to determine if the taxpayer should be charged with a Federal tax lien or not. Essentially, the class contends that the method the Internal Revenue Service uses to compute net income makes many taxpayers eligible for virtually unlimited tax liabilities. In most instances, they say the majority of taxpayers who receive such large tax liens at the hands of the Internal Revenue Service are ultimately unable to repay the claims.
Another major contention in this case pertains to the manner in which H&R Block operates in relation to its tax return preparation services.
Plaintiffs contend that H&R Block regularly sends its customers’ federal tax returns to the tax preparers at an advance fee. After reviewing the return, the company then charges the client for what is known as an “immediate service fee” which essentially means that the taxpayer must now pay for the return before the Internal Revenue Service can process it. While H&R Block makes an “instant” payment when filing the tax returns, the class contends that this fee creates a disincentive to taxpayers to engage in tax preparation.
This class action lawsuit focuses on a particular form of H&R Block Tax Sells, also referred to as “Form 8863”.
The form is available from various websites on the internet. It was originally developed by H&R Block to be used with the “ebay” format of IRS forms. While the Form 8863 appears to have been designed to simplify the tax returns process, the plaintiffs argue that it actually does the opposite because it requires a taxpayer to use a tax return software program, which is a software program not supported by the IRS.
H&R Block has provided the IRS with extensive documentation describing why they have incorporated the “ebay” form into their Form 8, but the plaintiffs maintain that this explanation does not justify incorporating it into a mandatory field.
The class argues that the inclusion of the mandatory field violates the guarantee of the IRS that it will not impose penalties or taxes on taxpayers who file their federal tax returns using improper means. The Class Action lawsuit further claims that H&R Block engages in a practice of requiring taxpayers to use an IRS-approved software program to file their tax returns, despite the fact that they do not require such a program to meet the requirements of the IRS.
Plaintiffs further claim that H&R Block engages in a scheme to charge excessive fees from its customers in exchange for providing mandatory training services, and in violation of the tax laws. The Class Action lawsuit is currently pending.