- Days left

IRS to quit assisting tax refund loans: consumer groups applaud

The Consumer Federation of America and the National Consumer Law Center applauded today's announcement by the Internal Revenue Service that it will no longer help banks make refund anticipation loans to the working poor.

The one- to two-week loans are made by banks and facilitated by commercial tax preparers, secured by the taxpayer's refund. In 2008, the groups say, the loans skimmed $738 million from the refunds of 8.4 million American taxpayers. Interest charges can be exorbitant, with some lenders levying fees that amount to annual percentage rates from 50% to nearly 500%.

The IRS has been facilitating these loans with a service called the "debt indicator" which helps banks that partner with tax preparers to make loans based on the borrower's expected tax refund. The "debt indicator" acts as a form of credit check, telling tax preparers whether a taxpayer's refund will be paid or will be intercepted for government debts.

"We are pleased that IRS has decided to stop aiding and abetting high-cost RALs that siphon off hundreds of millions in taxpayers' hard-earned money and federal benefits meant to lift the working poor out of poverty," said Chi Chi Wu, the consumer law center's staff attorney, in a statement.

Advocates at NCLC and CFA have been lobbying the IRS to end the debt indicator since 2005, when they published a report entitled "Corporate Welfare for the RAL Industry: The Debt Indicator, IRS Subsidy, And Tax Fraud." Their most recent criticism of the debt indicator came during the IRS Commissioner's Return Preparer Review Forum in August 2009, during which they again urged the IRS to discontinue the program.

"The federal government should not be sharing taxpayers' personal information for the profit of banks and tax preparers by operating what is essentially a free credit reporting service for them," said Jean Ann Fox, director of financial services for Consumer Federation of America, in a statement. "We are glad the IRS finally stopped letting tax preparers and banks pry into taxpayers' records about what they owe the government."

The IRS also says it will consider allowing a portion of tax refunds to pay for tax preparation, which the groups say could further undermine the refund loan and refund anticipation check markets, since some taxpayers use them to avoid paying out-of-pocket tax preparation fees.

In January of this year, the IRS Commissioner announced another reform backed by the consumer groups -- regulation of tax preparers. In the future, the IRS will require tax preparers to be registered, tested and adhere to a code of ethics.

The CFA and NCLA also called on the IRS and banking regulators to end refund loans once and for all by prohibiting tax preparers from sharing or using tax return information to sell or arrange financial products.

Increase your money and finance knowledge from home

Building Credit from Scratch

Start building credit...now.

View Course »

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »

TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

Add a Comment

*0 / 3000 Character Maximum