Popular Tax Preparers' Troubled Waters: IRS Bans Refund Loans

All taxpayers need to be aware of various issues involving the popular franchised tax preparers doing business in some states. Some of the most heavily marketed tax preparers, H&R Block and Jackson Hewitt are in hot water for offering loans against tax refund checks and for some practices in promoting their own products to consumers.

I suggest all tax filers to review the list of complaints presently pending concerning the popular tax preparers H & R Block and Jackson Hewitt. For a detailed list of problems with these tax preparers and others see: http://www.consumeraffairs.com/finance/tax_prep.html.

Consumer Beware:

On December 6, 2006 the Internal Revenue Service issued a directive that any tax preparer who offers loans against potential tax refunds will be removed from their approved list of tax preparers in the "Free File program."

According to the news release, the IRS answering the complaints of various consumer groups bans any tax preparer group that offers refund anticipation loans, commonly known as RALs.

Third party preparers like H & R Block's practice of offering loans for Free File taxpayers is specifically mentioned. H & R Block has offered RALs for the past five years.

Apparently the rub on the common use of RALs is the high interest on the loans, hidden fees and costs of the services which are deducted from the refund amount before the taxpayer receives the final reduced amount.

The RALS are aimed at low income taxpayers. The Free File program has a ceiling of $50,000 in income for 2006. According to Marian Edelman of the Children's Defense Fund, the fees and interests amount to over 900 million dollars for low income people in the year 2004.

A law suit initiated by the California Attorney General against H & R Block alleged that the company not only cornered the market of these types of loans to low income people, but utilized deceptive deceptive business practices by charging the exorbitant fees, interest and hidden charges.

There is also an additional charge that the company operating nation wide sold the tax information of its customers. Presently, H & R Block has been ordered to pay out over 95 million dollars to tax payer clients in various states. There are various other class action law suits pending against H&R Block for their deceptive practices.

The other popular franchised tax preparer Jackson Hewitt announced on January 3, 2007 an agreement to pay five million dollars to settle a suit brought by the California Attorney General for their unlawful marketing of high interest and costly RALs to low income tax payer clients.

Four million dollars of the settlement will be going back to the aggrieved tax payer clients in the form of restitution, according to Consumer Affairs dot com.

Selling Your Information:

In a very controversial move, the IRS seems to be leaning towards allowing tax preparers to sell information they have gathered from their clients to third parties. In a story by Consumer Affairs dot com, while your tax preparer may use your information to offer you products they offer like the RAL, mutual funds and banks, they could not sell your information to outside concerns.

In a somewhat confusing change of position, which is not entirely clear, it appears the IRS may consider allowing your tax preparer to sell your information to data information services like Choice Point.

Choice Point is an information service that some employers use as means of performing background checks and financial institutions use this service, also.

In response, Choice Point says they have no intention of using tax information in their data collection service. However, numerous consumer protection groups find that any move by the IRS to soften the "consent exception rule," which is the catch when you agree to allow someone to prepare your taxes is just asking for trouble for consumers.

In practice just because you allow someone who you think is a trusted tax preparer to do your taxes should not allow them to blab your information to third parties and get paid for it. See: consumersaffairs.com.

Good work by the California Attorney General's office and good information for American taxpayers as we enter tax season..