The End of RALs

This morning TaxMama received a press release from Harry W. Buckley, president and chief executive officer of Jackson Hewitt Tax Service Inc.
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in response to IRS’s announcement yesterday about removing the debt indicator from the electronically filed tax returns at the time of filing.

Mr. Buckley has strong concerns regarding the recent IRS announcement that it will eliminate the debt indicator for the 2011 tax season. In his opinion, this move has significant implications for taxpayers:
“The IRS decision to not provide debt indicator data to taxpayers through the electronic tax filing process will make it difficult for the millions of taxpayers who desire to receive cash quickly in connection with the electronic filing of their annual tax return.  This form of credit, especially important to middle and low income, often unbanked, taxpayers, may well continue to be available in our industry.”

And the release goes on.

I am not surprised to get such a statement from a storefront-type operation like Jackson Hewitt whose target customer is the lower income taxpayer. They, and chains like them who push the Refund Anticipation Loans (RALs) will lose millions of dollars in income as clients are no longer able to get instant refunds.
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In fact, if there is no incentive to come to a refund mill, they just might lose those clients altogether as they learn about no-charge tax preparation serices at VITA sites around their community, in their houses of religion, schools, libraries, etc.

For years, I have been speaking out strongly against the practice of pushing low-income taxpayers to get these quickie refunds. In fact, in my annual online filing article for MarketWatch.

com, I have eliminated all the tax preparation sites who make the RALs a prominent feature – to the chagrin of certain major companies.

The problem is, most of the clients who get RALs don’t understand that they don’t have to pay for such a service. Their refunds will arrive in about 2 weeks anyway even if they don’t pay an extra $40 – $60 or more the ‘instant’ refund. They are often encouraged to believe this is the only way to get their refund. The National Taxpayers Advocate, Nina Olson, has been railing against this practice for years. IRS Commissioner Doug Shulman has actively discouraged the practice, to the point of excluding companies that push RALs from the FreeFile Alliance program.  And the AARP Foundation, who runs Tax-Aide, one of the largest VITA/TCE programs in the country have always communicated to IRS the negative impact of RALs on low-income taxpayers, who cannot afford the high fees and interest rates that are very often applied to these short-term loans.

AARP joins me in  applauding  IRS Commissioner Doug Shulman for taking this bold step to pull the rug out from under the entire RAL program.

Yes, some people who really need the money within a day or two to keep from getting evicted will be harmed.

But, honestly, don’t you think it’s time that working people whose finances are that close to the vest learned more about how to get the refunds in advance?

Yes, you can get a substantial part of your Earned Income Credit refund in advance using Form W-5 to have some of that money added to your paycheck.

Perhaps the refund mills will earn some extra fees by helping these folks prepare those W-5s so they can get the money they desperately need to pay their monthly rent and groceries – so they face fewer financial emergencies requiring them to pay high fees to get their own money.

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