The IRS is considering saying no to “rapid refund” type loans to taxpayers. The loans, made by tax preparers like H&R Block, have been the subject of a number of lawsuits – and the IRS believes that they made also lead to increased instances of fraud. There is a “financial incentive to take improper tax return positions in order to inflate refund claims inappropriately,” according to the IRS.
The IRS is considering restricting tax preparers from providing tax return information to lenders who provide instant refunds and then charge customers predatory interest to repay the loans.
Restrictions on these loans will be studied and open to public comment for 90 days after any regulations are proposed. Among those already signaling opposition? Jackson Hewitt, the nation’s No. 2 tax preparer, which had many franchises targeted for closure last year for a “pervasive and massive series of tax fraud schemes.”
What do you think? Should these loans remain available to taxpayers willing to pay the fees and interest? Or do these “get your money back quick schemes” need to be stopped?
(Hat Tip: Bill Lee)
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I sincerely hope that the IRS does forbid tax preparers from offering Refund Anticipation Loans, and have said so in many venues over the years.
In my 35 years of preparing tax returns I have never offered Refund Anticipation Loans to clients, and never will.
The Refund Anticipation Loan is bad financial policy and definitely not in the best interest of a tax client. RALs are expensive, and are being pushed upon lower-income taxpayers by unethical “fast food” tax preparation chains like “you know who”.
As the fee for a RAL is often determined as a percentage of the loan principal, or refund, the greater the refund the greater the fee to the preparer. I agree with the IRS that this could cause unscrupulous preparers, whom we all agree are out there, to arbitrarily increase the refund to increase their fees.
I do believe that the majority of tax preparers are ethical and do look out for the best interests of their clients within the context of the law. Many of these ethical preparers feel that they must offer RALs to clients in order to remain competitive, even though I am sure they would rather not have to involve themselves with such usury. These preparers properly explain the true costs involved with a RAL and often offer such products at a better rate than Henry and his brother, etc.
Unfortunately, most lower-income taxpayers are tempted by the tv ads that do not say that a certain tax preparation chain will prepare a tax return properly – but only that you can walk into their office and walk out with a check! Plus, I do believe that lower-income taxpayers have the false impression that a fast food chain service will be less expensive than going to an individual tax professional.
If the IRS forbids all tax preparers from offering RALs then the ethical preparers who do so only reluctantly do not have to worry – no other preparation service or office will be able to offer them. When an ethical preparer tells a potential client that he/she does not offer RALs they cannot walk out the door and take their business down the block to someone who can.
Plus it is easier to tell a client that the IRS forbids you from doing so when asked why you do not provide RALs than to say it is a bad thing.
TWTP
Used to work for H&R Block. I can honestly say no one ever pressured me to sell a RAL to a client. Most preparers I know try to talk the client out of a RAL. Two reasons: We had to fill out three sets of paperwork to get it done and not a good deal for the client. Our pay was never tied into producing RALs. (However, don’t even get me started about IRA accounts) Clients 99% of the time went for the RAL. It was truly unbelievable. The true rip off with these preparation outfits is not the RAL, but the cost of the service when a client received an EITC. Always over $200. They never cared because they paid zero tax, were getting back thousands of dollars and the cost of the service was deducted from the RAL.
We always tried to get back the largest possible refund for our clients not because we got paid more but because it was our job.
I worked in marketing for 6 years for the largest financial company that offered RALs. With all that experience, I can say that I don’t like RALs and I never liked marketing them.
Will the IRS truly get rid of them? I doubt it. They threaten every year, but it never happens. In fact, the IRS actually rewarded RAL lenders several years ago by reinstating a system where they let lenders know at the time the tax return was filed whether or not that refund would be paid or not (the ‘debt indicator’ had been taken away in the mid 1990s). I haven’t worked in this business for several years, but without giving away any insider information, the reason they gave it back was because they thought RALs helped increase electronic filing, and we all know about the IRS’ goals for increasing e-filing.
The debate will keep going. We’ll have to wait and see if RALs go away anytime soon.
I generally tend to think that if people are dumb enough to agree to usurious interest rates to get their own $ back (that could have been prevented by decreasing their w/h), then that’s fine. But with RAL’s, I think the potential for increased fraud is too high, and would love to see them eliminated. Of course I think that RALs, rapid refunds, and the like cheapen the entire profession too, and would like them gone for that reason alone.
The real problem is that the way that the fees/interest are calculated, it isn’t always clear what the rates actually are. I also think that these companies who sell these loans overstate how long the IRS would otherwise take to send a refund. Over the past several years, I have volunteered at a local senior center to prepare taxes through IRS’ VITA program. I am sick at the number of seniors on fixed income who were convinced by these companies that it would take “months” to get their money from IRS rather than the “instant” cash through this system. With direct debit, most of my seniors who file basic returns got their refunds – interest free! – through IRS in about 2-4 weeks.
I believe a lot of people miss the boat on the scam that is H&R Block. Humans are designed with the ability to tell on ourselves, The name says it all…H=Hurry (the client) & R=Run (with
thier cash before they realize what’s happening to them), BLOCK = any attempts of them getting the money promised and the money they’ve already paid. H&R BLOCK!!!
I am one of those poor people who get the EIC and receive back more than they paid in (how does that work)????
Anyhow, I went for the RAL this year, I was told by the people down the “block” that it would be here in 1-2 days. I called at the end of the first day only to be informed that the bak denied my RAL and I would have to wait 8-14 days.
I started rading on the net and I see that many many people have the same experience which is ok except that the “block” still charges you for the RAL??? in my case $82 bucks worth. What a rip.
Anyhow, I don’t complain much seeing that I paid $1800 in taxes and am waiting on a refund for $2900 (how does that work)??? someone somewhere is getting the shaft…welcome to America.
From the bank’s perspective (and how your RAL application is worded), if your RAL application is denied, the bank will only charge you an Account Administration Fee (it was about $24.95 a few years ago when I worked in the industry), not the full RAL fee. You will receive your check (or direct deposit) as soon as the bank receives your refund amount from the IRS (typically 8-14 days unless the IRS holds it for some reason).
“block” still charges you for the RAL??? in my case $82 bucks worth”
I am a preparer who offers RAL. Block is not charging for the RAL the bank does. No bank will charge you for the RAL if you do not receive it. Your money will be $82 more than you expected.
Yeah right, all these people aren’t being charge the fees either: http://www.consumeraffairs.com/finance/hr_block_ral.html
No big deal for me really, again..I paid 1800 in taxes and my refund check is (when I get it) $2900. Their stealing someone elses money not mine.
Your right, the bank doesn’t charge for the RAL they just charge $20 and change for using their direct deposit account and $20+ for cutting you your check. Thats fine except that they force you into using their account to get the RAL and a day later when they tell you that you don’t qualify for the RAL the IRS already has their bank info on your return so you have to have the refund deposited into their account even though you get squat from them.
i think it should be up to the respective parties. if people are willing to pay interest (or if anyone is willing to be caught for committing fraud), that’s up to them.
It’s not a matter of paying interest. It’s a pattern of activity that raises genuine concerns about consumer protections. Banks are limited in their abilities to charge interest – why should this be circumvented by crafting a loan as an advance?
this was the first year that i used the “block” and it was a horrible experience. i filed my taxes on monday and was suppose to receive my refund by thursday, well it is friday and i have no money. i went to the office and they told me the irs is holding my money and they didn’t no why and there was no way to find out. i don’t think that was right i let them take out xtra money because i needed this money back this sat and now i will not have it until the 12th. but no one in the office has anything to say about it? go figure!!!
There is a huge demand for the RAL. We don’t push this service on our customers, and we certainly prefer that they don’t request it. Since we do offer this option on our website, we just can’t stop people from coming in and asking for the RAL. Since the balance of the loan is paid by the IRS, the bank fees associated with this service is a calculated risk based on the likelihood of IRS funding. Sometimes, banks lose. Last year, banks lost a lot of money from unpaid RAL loans. Concerning the issue of fraud, I believe that the system will fix itself. Both the banks and the IRS don’t want to lose money from fraudulent returns. Fraudulent returns are often associated with high loan losses, and efile providers with high loan losses last year can’t offer the RAL to their customers this year. Bill
Please help anyone. I recieved a RAL about a month ago. I got my check in one day. Now Republic Bank is calling me telling me I owe them $6000.00 because the IRS has not payed them the money yet. Has this ever happened to anyone?
I called the IRS a week ago and they said the money should be paid to the lender (Republic Bank) in a few days. Now today a week later and Republic bank calls me again saying that they haven’t received the money.
Any answers or comments is greatly appreciated
Thanks
I would contact the IRS directly to find out the status.
One of the dangers of those loans is that they are, in fact, loans and are not secured or guaranteed really. If there’s an error or problem with your tax return, generally, it’s on you to fix.
Teeky
Kelly is right. They are in fact a loan. They are considered outstanding by the bank one week past the expected funding date. Call IRS offset line at 1-800-304-3107 to find out what happened. If you are delinquent on child support, student loans, back taxes, or any qovernment loan they can and will offset your taxes. No one else can take them.
Thanks for the number, Carolyn!
And yep, Carolyn is right – there are reasons why you might not be entitled to the full amount (which, of course, H&R Block or whoever gave you the RAL would have no way of knowing).
To all: please read the small print on these loans if you go in this direction!
Thanks Caroyln and Kelly your imformation was very helpful. The number you gave me helped me find out what was going on. The IRS said my refund is under review. I should recieve a letter in a week or so.
I am so glad to hear it! Fingers crossed that it all works.
Teeky
I hope it does work out. When your return is under review, they sometimes will request information to prove you and your dependent, if you received EIC for that dependent, lived at the same address before they disburse funds, especially if your dependent changes from year to year. If they request information and you cannot provide it, then you will not receive any monies associated with that dependent and you will owe the bank any difference that is not paid to the bank…Good Luck..
IF YOU APPLIED RAPID REFUND HOW WILL YOU GET YOUR REBATE CHECK.
Traditional paper check
I have been doing my taxes on my own the last couple of years and each year that I continue to do them there is an error. However, in the past when I have used Rapid refund I never had an issue of being audited by the IRS and now that I do them myself I am being audited again. I will pay for the rapid refund and I know alot of others who will be doing so just because the ecomony is tough and to have that money there to pay for the unexpected expenses are nice. In the end I will be paying someone to do my taxes this year whether it be a private company or a rapid refund company. I lose money either way.
I tried to do the rapid refund got denied by the bank and have to wait the 8-14 days. But am I being denied my money or just the loan? The tax preperer said that there was a code with the denial but couldn’t tell me what it meant. If anybody can tell me what those codes mean it would be nice.
Well, I used to be one of the fools that used tax prep places and let those leeches take a chunk of my refund just get it back in 2 days. Then one day I realized “Hey, i’m not so broke that I can’t wait a week for my money, and I’ll get even more back!” I actually enjoying doing my taxes and writing off stuff and researching new tax credits to see how much more cash I can legally get from the government that I religiously pay into every flippin’ two weeks. I am a strong advocate for self-efiling. And I preach to anyone I know that falls for the man’s plan every year. What’s really a shame is that these places are most prevalent in low income mostly minority communities, along with the payday loan joints, pawn shops and the liquor stores. When will the folks in the inner city wake up and realize that they are being played on a daily basis in their own neighborhood. HELLO PEOPLE!! IT’S NOT A “HOOKUP” IT’S A “JACK YOU UP FOR THE REST OF YOUR LIFE” SCHEME TO KEEP YOU DOWN AND OUT!!