IRS Decision on Refund Loans Not Good News for Tax Preparers

Washington Post
August 12, 2010
Singletary, Michelle
P. A12

Beginning with the 2011 tax filing season, the IRS will no longer provide debt indicators to tax preparers and financial institutions. Debt indicators initially were used to encourage more people to file their taxes electronically; but with 95 million tax returns filed this way in 2010, the IRS says they are no longer needed. Companies that write refund-anticipation loans (RALs) used debt indicators to determine how much of a refund could be taken by the government to pay delinquent taxes or unpaid child support or student loans; and, without such information, the risk of such RALs not being repaid increases. Observers say withholding such information allows the IRS to curb RAL business without an outright ban. Consumer advocates have long opposed RALs because they prey on low- to moderate-income taxpayers and charge enormous fees to access money that they will receive in a matter of days by e-filing. The Consumer Federation of America and the National Consumer Law Center say $738 million in RAL fees and $68 million in add-on fees were paid by 8.4 million taxpayers in 2008, with annual percentage rates ranging from 50 percent to nearly 500 percent.
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