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!!
well i have filed with both of the well know places u file u taxes an guess what the last 3 years the irs has taken my taxes cause they say i owe i filed an amendent reture this year an waited 6 months to get a lady from a lady from the tax payer advacted sevice who then worked on my taxes for another 7 months to tell me the irs took it again an yes i do the ral loans becasue i cant wait for my money to come in cause my husband works off an we have to hav ethe money when he home to pay something off an other things we were goint o do with the other money we paid the irs we were promised so dont believe anythin anybody tells u at the irs or any were else cause they will all lie to u an will not help u an tell u u will have u money i 7 days then 1 yr lady tehy tell u they r taken it cause u owe it to them but a yr before that u didnt owe so they r all liers an crooks an dont do nothin but still from the poor what about them rich people livin high on r money that the government is givin them y cant we be rich like them i am so sick of them (irs) if i didnt have to deal with them i wouldnt an besides not sendin me my money lets not talk about the cell phone bills i ran up callin them every week like they told me too so i pay my extra so i can have my money that i deserve so i think they should keep it an give me my f***ing money when they promise an like they r supposed too
It’s MY money and if I want to use a RAL then it’s not up to the damn government to babysit my choices.
RAL fees are certainly high and there are, additionally, several problems with the system. One of these is the charging you a service charge when the RAL doesn’t get accepted.
Personally, the only time I even choose to use a tax prep place is if I really need the money soon and there are a lot of other people in the same boat. I took out a RAL this year for 7002.00 and am waiting to see if it goes through (should know tomorrow) because of a serious financial problem that popped up. Normally, I try not to spend money that I don’t have to, but this year that extra few days will make a real difference to me if it goes through. I filed through Jackson Hewitt and the fee was just 58.00 for the RAL this year + a filing fee of 20.00 or so. Now, I don’t get earned income credit or most of the other tax credits because I make too much money, so mine is just a return of well less than half of what I paid in, but I don’t think that made any difference in the fees — although I could be wrong. My entire fee, after using a 20.00 off printed out internet coupon, including filing the 1040, Schedule C, 3 state income tax returns and some pretty complex depreciation that took the lady 5 hours to fill out was 369.00. I consider that pretty decent. 3 years ago, I used H&R block on a much simpler return with a 2900 refund and they charged me 915.00, which was insane. In fact, I would have backed out if they hadn’t already pushed the button and submitted the return. I definitely won’t consider using them again.
Like any place, though, you need to make sure you get a decently knowledgable person to file your taxes. I always call ahead and make an appointment with someone that has experience; believe me that helps.
Anyway, my point here is that some places are better than others. Personally, I don’t think the government should have the power to stop the practice of OFFERING the loans, although I think that deceptive offerings and forced ins should have stiff penalties. Most tax companies won’t push them on you, but a few will.
And, some companies make a profit off of offering RALS and some don’t. Republic is offering lower rates this year through Jackson Hewitt at least because Jackson Hewitt isn’t taking a cut (although they MAY be getting part of the fee, but not the interest).
Also (Finally): Tax preparation companies won’t have near the business at all if RALS cease to exist, because a large percentage of the filers are there to get those refunds faster. Supply and Demand. A good friend of mine runs a small individual tax service in a small town in Oklahoma and he decided to quit offering RALS last year because he felt that people were losing money on them (and it actually cost him a 3.00 filing fee that he didn’t pass on when someone chose to apply for one) and his business dropped by over half. People will walk in and go through the whole process and then, when he tells them that he doesn’t do RALS, they get up and leave without signing the paperwork. The loans are there because people want them.
I think this is so outrageously rediculous. I am registered independent but since I just found out today that we were turned down for this, something we have waited on for months now to happen, I am seriously considering changing my registration to republican. I have always heard the phrase “If it’s not broken, don’t try to fix it” this is not broken, but thanks to our so called muslim president who really just wants to destroy this country and is doing a great job at it may I add, he has. Everyone downed President Bush, and I didn’t even vote for him, but he was 100% better than Obama who is trying to play god.
Nikki, what are you talking about…
Anyway, I went to jachewi on the 1/19/10 to file taxes. I just do the assisted refund where they take the preparer fees, and the bank fees so I can have it deposited in my account. I did the RAL one year in 2006 and it was the worst thing I did for me and my family. We did qualify for $1300 on the first day, but we had to wait for the rest. Man we had to pay sooo much money to cash the check. I promised my family I will do better by them after that. We looked at the return, and the fees, and I said that was too much money. We get EIC and everything else because I am in college, married with 4 children. I used to do my own taxes when I was single, but one mistake almost cost me a few thousand years ago.
Eventhough I have debts, I never make promises to pay unitl I have the money. Paychecks are one thing because the have to pay you, but your dealing with human error, and of course the IRS. In ‘09 my refund was pushed back a week and cost me my rent, ISF’s, and utilities. Granted the IRS actually found I was owed another $300, which was a shock. Still banking on the date before the change prompted me to be more cautious this year. I always cross check with the bank my tax preparer uses, and the irs’s website using the “where’s my refund” tab. They usually update inofrmation on Monday night/Tuesday morning. If the date you are to recieve your refund on the irs’s website doesn’t change by Wednesday, then it will be recieved on a Friday if you did an e-file. usually this Friday date, corresponds really to a date of the following Tuesday.
I totally agreed being that I have worked for a well known tax company for a few years. This rapid refund thing is nothing but a huge SCAM. With the hard times people are having these days it is ashame that tax preparers are pushing people into applying for rapid refund on their taxes. SCAM!!!!!!
ChompintheBit you are mistaken. If H&R Block doesn’t give you the RAL then they don’t change you for that service. I suspect you don’t have a clue yet because you are still waiting for your refund. I also suspect you not have asked the Blockhead if you would still be charged. Try it and give them a call you will find I am correct…