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?
The fault of not telling people this lies with the IRS. The IRS didn’t post this information until after April 15th.
Though, I’d support the lawsuit if it got rid of RALs
Typical — don’t take responsibility to inform yourself, just file a lawsuit. Re: RALs. As onerous as they are, try and tell a person who is about to lose their car, or be thrown out of their apartment why they need to wait for the IRS. You can track the rise of RALs to the EITC. Perhaps one day RALs will go away when the IRS implements a 2 day turnaround on refunds!
TexasEd, that is exactly my point. Folks that rely on RALs would not, IMO, have changed their behavior at filing in order to accelerate the rebate later.
Plaintiffs to such a law suit would have to prove that third party preparers had a duty to inform people of this, did they even know? Did they have a duty?
As a tax preparer I can say the fault lies with no one. Remember the stimulus package did not get passed till late February and the rebate schedule did not come out till late March or early April. By that time probably 95% of the RALs had been processed. Once the schedule was out I informed my clients of the delay in their rebate if they did not direct deposit.
Why are people making such a big deal over “Free Money”. People should be grateful to be getting anything in the first place instead of being greedy. Anyone who files such a suit should be ashamed of themselves and any attorney who takes part in such a suit should be disbarred. Turbotax and Block have the money to fight these suits, but what about the people who are self employed tax preparers? What are they to do, sue the IRS?
I think some folks could argue they were damaged if they did not receive notification from the tax preparer/tax prep software indicating they would not get direct deposit of their rebate, by the time they would have received the rebate by direct deposit and they looked at the IRS schedule, assumed they would get their rebate on the direct deposit date, wrote a check (or scheduled an electronic payment) and then did not have the funds available. Those folks were likely hit with with bank and/or late fees. Again these would have been pretty minor, but aggregated…
I eFiled at the end of January, got a nice little refund. But I didn’t take an RAL. All I did was take advantage of the service offered by TurboTax and Santa Barbara Savings. For a small fee, they arranged to have my tax return deposited directly to my bank. IMHO, this should be free, and should be handled directly by the IRS. But now, because my SSAN ends in high digits, I’ll need to wait until the very end, July 11th, to get my paper check. Have I been harmed? YES! Was I informed? NO! I’m still waiting for a note from TurboTax that tells me how very sorry they are. What about it Intuit? Throw us all a bone. How about free eFile for the next few years?
Jeff, When you filed your returns at the end of January the stimulus package had not even been passed nor had the schedule of when stimulus payments would be made. There would have been no way for turbo tax to even know.
It’s not just RAL’s that are causing this.
I suspect, but Turbo Tax has been reluctant to confirm, that because we chose to print our return and mail it with our check for taxes owed, we will get a paper check.
While we included our checking account number, as directed, in the software in order to have our rebate deposited, it never printed on our return. We didn’t think to check the return to ensure it had printed, we received no notice from TT about the issue and didn’t even consider the omission until our check didn’t show up in our account. I’ve contacted TT three times and have gotten a number of reasons which were deflected to blame the IRS. But finally, one (poor) tech indicated that it “may” have been a bug in their software. Will this cause me financial hardship? No. Am I beyond annoyed? You bet!! We printed and mailed our return on April 14, if TT had done us the courtesy of letting us know that we needed to ink in our checking account number we would have done so. No harm, no foul, we would have appreciated them letting us know. TT screwed up and should someone file a class action, I’m there!! But I won’t buy their software again.