I’ve received a number of emails from angry taxpayers who allege that third party preparers like H&R Block and tax software developers like Turbo Tax failed to properly advise that certain kinds of transactions (such as refund anticipation loans or paying filing fees from tax refunds) would result in a paper check versus direct deposit with respect to rebates. One taxpayer asked me if any recourse was available. Another asked, bluntly:
Do you think people understood that if they told their tax preparer “take your fee out of my refund” that they’d have to wait for their rebate check to arrive in the mail? Do you think TurboTax and H&R block communicated this?
Hmm.
Here’s my quick take on it and then here’s what I think will happen (get your rotten tomatoes ready)…
With respect to RALs and other loan transactions, I think that even if they were fully briefed on the consequences, a majority of taxpayers would not have acted differently. Refund anticipation loans are used for a number of reasons – but the reality is that most taxpayers if they opted not to have a RAL would have their refund checks direct deposited, on average, 11 days later. For whatever reason, taxpayers opt to get the money sooner rather than later. I personally don’t believe that taxpayers who pay interest to a third party in order to receive their refund a couple of weeks early would have opted to wait then rather than now – in other words, foregoing the RAL in order to get a rebate sooner. I don’t think – for that majority – that would happen.
My take on the software is not quite the same. I think most folks have those fees paid out of their refunds for the purposes of convenience only – and in that regard, some taxpayers might have acted differently. I say “some” and “might” because I still believe that the majority would have filed exactly the same way.
So what does any of that mean?
I think there will be lawsuits. I would not be surprised to hear that somewhere, already a class action plaintiff’s attorney is busily spurring his team into action to collect the names of potential litigants…
But the part that stumped me was “What are the damages?” Other than inconvenience, I can’t see where there are actual damages from a legal perspective – you know, that can be quantified. Taxpayers still received the same money, just a little later.
So, I asked an attorney familiar with class action suits what he thought. And his response was that he agreed that damages will be difficult to prove. He does not, however, believe that will prevent those lawsuits from being filed (hey, tax preparers and tax software manufacturers, get your legal teams ready!). And the result? His cynical take – which I will go on record as saying that I agree with – is that the only folks to benefit from this lawsuit will be the plaintiff attorneys who will, no doubt, walk away with millions. The matter will be settled with tax preparers and software companies agreeing to issue some kind of coupon off of next year’s purchases and services (the attorney that I spoke with ballparked the coupons at $5 off) in order to avoid a lengthy trial.
And there you have it.
Those are my thoughts on the whole liability issue – what are yours?
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