Refund Anticipation Loans, Rapid Refunds, Sleazy Tax Preparers
The sleaziest thing a tax preparer can do is sell you a “fast refund”, “two or three day refund”, “instant refund”, “EZ-Money or “Rapid Refund”. They are selling you a BANK LOAN at an extraordinary percentage rate PLUS the fee for preparation. 
Witness the poor person who had a $50.00 refund and was charged $150 for tax preparation for an 1040EZ. Witness another person who got a “rapid refund” only to find out their child support took that refund … they had to pay the bank back at another extraordinary rate. Banks have no sympathy for your woes. You must ask enough questions to know what you are getting in to. Most people are just in too much of a hurry to get that money. These ‘fly-by-night’ preparers are great con men, they are like carnival hucksters who know a sucker when they see them. As soon as they hear you need your refund fast, their eyes go ‘cha-ching’.
Taxpayers who do not want to wait for their tax refunds from the Internal Revenue Service (IRS) may choose to obtain refund anticipation loans (RAL). RALs are short-term, high-interest bank loans that are advertised and brokered by both national chain and local tax preparation companies. Although the annual percentage rate (APR) on RALs can be over 500 percent, they allow taxpayers to receive cash refunds quickly–sometimes within the same day and even within an hour of filing their tax returns. After filing a taxpayer’s return electronically, the tax preparer works in cooperation with a bank to advance the refund as a loan minus tax preparation costs, other fees, and a finance charge. As part of the RAL process, the taxpayer provides authorization to IRS to send the refund directly to the bank to repay the loan. Despite the benefits of receiving cash quickly based on an expected refund, IRS officials and others have raised concerns about whether taxpayers are fully aware of the costs involved and their tax filing alternatives. For example, in a 2007 report to Congress, the IRS National Taxpayer Advocate questioned whether RAL consumers actually understand the nature of the loan product they are receiving. According to the Advocate, while tax preparers offering RALs are required to obtain taxpayers’ signatures on written disclosure forms, there are no requirements that such disclosures be made orally. The Advocate wrote that despite the written disclosures provided to them, consumers may not fully understand that the RAL is in fact a loan and not simply a way to receive a faster refund from IRS. Further, without an oral explanation, consumers may lack a general understanding of the nature of the product and its impact on credit reports, as well as other consequences of default. In January 2008, in order to address this issue, IRS and the Department of the Treasury (Treasury) indicated in a Federal Register notice that they were considering rules to prohibit tax preparers from marketing RALs based on information gathered during the tax preparation process. In their notice, IRS and Treasury cite concerns about tax preparers improperly inflating refunds in order to market RALs, particularly when working with customers eligible for the earned income tax credit (EITC). IRS studies have found that this credit is particularly susceptible to fraud, in many cases perpetuated by paid tax preparers. In 1999, an IRS compliance study found $10.4 billion of overclaims on the EITC, of which $7.2 billion (70 percent) was attributed to tax returns completed by paid preparers. Based on continuing concerns over how RALs are marketed to taxpayers, Congress requested that GAO perform a limited investigation to identify examples of where RALs are marketed and the types of information tax preparers disclose to potential RAL applicants.
RALs are marketed by tax preparers that operate in a wide variety of businesses, ranging from major retail stores to automobile dealers and shoe stores. Of the 40 tax preparers we called or visited, 37 offered RALs. 13 tax preparers offered year-round tax preparation in their own stand-alone offices, while 27 were open only during the tax season and operated at tables or desks within existing businesses offering other products and services. Of these 27 preparers, 13 were located in businesses that target low-income customers; however, 14 chose the locations of their businesses because of low overhead costs. One tax preparer we observed minimized overhead costs by operating out of a trailer in the parking lot of a gas station. Tax preparers we visited were generally willing to provide information about RALs, but did not use a consistent method to calculate their advertised APRs. 27 of the tax preparers we called or visited were located in existing businesses in order to market to the businesses’ customer base, and 13 of these were located in businesses targeting low-income customers. IRS data show that RALs are disproportionately purchased by low-income taxpayers, and some seasonal tax preparers market to this population by operating within businesses that serve low-income customers, such as check cashers, payday loan vendors, rent-to-own stores, and pawn shops. We found 14 tax preparers that operated within existing businesses in order to take advantage of low overhead costs but did not specifically target low-income customers. These included those in a vending service company, a small business services company, and a van rental store. In general, these businesses did not offer any incentives to attract tax customers to their primary products. Some national tax preparers also market RALs by offering tax preparation in major retail chains. Tax preparation services in these retail stores are seasonal and generally close around April 15. Several of the businesses we observed offered multiple services unrelated to tax preparation. We found that tax preparers were generally willing to provide information about RALs during the tax preparation process. All 5 preparers that completed federal and state tax returns for our fictitious taxpayers gave an estimate of the fees and finance charges associated with a RAL based on our refund amounts. During our visits, we did not experience any pressure to apply for a RAL. Of the 40 tax preparers we called or visited, 6 discouraged us from applying for RALs because of the high interest rates or the short time it actually takes to receive a refund directly from IRS. Tax preparers offering refund anticipation loans must abide by the requirements of the Truth in Lending Act and the IRS Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns. Some of these advertisements gave sufficient information on APRs, finance charges, and other fees to determine how the preparer had arrived at
its advertised APR, while others gave only limited information.
IRS data show that RALs are disproportionately purchased by low-income taxpayers, and some seasonal tax preparers market to this population by operating within businesses that serve low-income customers, such as check cashers, payday loan vendors, rent-to-own stores, and pawn shops.
In some cases, RAL customers are able to receive their cash refunds in as little as an hour after filing their returns, while they are still inside the business or store where the seasonal tax preparer is located. Some of these businesses encourage customers to spend the refund immediately, by offering discounts on their products and services. For example, an auto dealer we visited told us that if we didn’t have enough money for the down payment on a car, we could get our taxes done by its tax preparer and use the refund as a down payment. SEE ENTIRE REPORT
Refund Anticipation Loans are the hook for too many taxpayers putting the responsibility for their economic welfare in the hands of someone who just wants your money. These preparers are too often sloppy with the facts put on your tax return. You end up paying for their mistakes. 
IRS no longer allows a taxpayer to blame the preparer. The taxpayer is held accountable for everything on a tax return, regardless of who actually prepared it. These preparers know you don’t know anything about your own tax affairs, they make it their business to keep you in the dark while they put you in jeopardy. Good luck returning to the preparer for help when you get a letter from the IRS asking you to prove something you put on your tax return. Many of these sleazy businesses fold their tents and disappear as soon as they have milked all they can get, before the April 15 deadline. Most of these sleaze balls fail to tell you the IRS offers free services, E-file and 10 to 15 day refunds for FREE!
June 10th, 2008 at 9:30 pm
[...] BossKitty at BlueBloggin tell us about the Government Accountability Office’s (GOA) revealing report to Congress on how tax preparers work in cooperation with banks to advance refunds which can greatly reduce your tax refund check in Refund Anticipation Loans, Rapid Refunds, Sleazy Tax Preparers [...]
April 29th, 2009 at 11:54 am
If IRS would allow full time(year round)CPA’s and other tax professionals to deduct their fees, eg. have their fees directly deposited in the preparer bank account while the remainder of the refund gets deposited into the taxpayers bank account it would almost eliminate these ridiculous bank products and fees. This tax season most taxpayers had their refunds within ten days of efiling. I do not charge extra for efiling and would not charge extra for the fee deduct. I refuse to offer bank products. It would actually save me billing and collection costs. How bout helping out the little business person, CPA, and letting the chains and banks figure out another way to gouge the taxpayer.
April 29th, 2009 at 8:21 pm
That is a good idea Priscilla. IRS, however, is constrained by certain laws that limit their method of issuing refunds. Mail or direct deposit are the two options. Secure technology is at the heart of what IRS can do. Electronic Funds Transfers must leave the Treasury clearing house and must be accepted by the (taxpayer or preparer)designated bank clearing house. Treasury has recently allowed refund direct deposits to be split into multiple bank accounts.
That’s where RAL banks have an upper hand. The weight of responsibility lies with preparer company policies they impose upon their preparers. Ethics is not always the priority. If you prepare returns, you must be familiar with the anxiety and urgency some taxpayers bring into your service. They really don’t want to know about the return itself, they just want that refund. Those taxpayers are the most at risk for being scammed. Some preparation software and some preparers offer a seductively cheap charge for their service and don’t make it clear they are also charging for each line they fill out, plus an extra fee for pushing the send button. What is so sad, is that these kind of preparers don’t even read the answering email stating whether IRS accepted or rejected the return. Taxpayers call wanting to know where their refund is, only to be told there is no tax return on file.
As for helping out the independent preparer, that independent has the most latitude for explaining to their client how they can split that refund between the fee account and the taxpayers account.
May 14th, 2009 at 1:00 pm
Hope everybody has (or had) a nice holiday.
January 27th, 2010 at 11:09 pm
I have been doing income tax returns for over 30 years, and I can tell you that most clients hear what they want. I explain the costs of RAL’s, show them a calender that clearly shows they are paying a hugh amount for a few days savings, and explain that the Loan is not even a sure thing until the IRS acknowledges the tax return, without a debt indicator, and NOT to count of it until they have the check in their hand. They don’t care. The younger the client, the more they want that money in hand and will pay what ever to get it.
I thought that with the economy in the tank that less would want to spend the money on the bank products, but it seems the opposite is true. We have even started a policy of accepting post dated checks so we do not have to pay the bank to deduct our fees as a service to the client.
The bank we use has a 4 page disclaimer, clients do not read it, and while I am expalining it they do not pay attention. They only complain when something goes wrong….
Since the IRS can split deposits to different accounts, I dont see why they could not split it and put the fees into the preparers account. All preparers must be registered with them anyway, and in the comeing years licenced. However, since this would limit the income of our banking industies it will not be done.