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.