The IRS may be hitting tax preparers hard by restricting their ability to offer audit insurance and refund loans because these products are shown to promote fraud. The IRS tax help plan, if implemented, would prohibit tax preparers such as, H&R Block, Jackson Hewitt, and Liberty Tax Service from giving out your personal tax return information to loan lenders who give instant refunds while charging extravagant interest rates, even into triple digits. In anticipation of such action by the Internal Revenue Service, Jackson Hewitt and H&R Block stocks fell recently.
The IRS believes that income tax preparation services may be tempted to inflate tax refunds to get higher fees. Basically, the tax preparation may be performed in an improper manner leading to overinflated tax refund claims. Generally, after a tax filing or doing a tax return, a tax refund can take between two to three for the IRS to process and mail the checks.
According to the National Consumer Law Center approximately 12 million taxpayers took out refund loans in 2004, shelling out more than $1 billion in fees. H&R Block calls its refund product, Instant Refund Anticipation Loan and Jackson Hewitt offers the Money Now product. The three companies believe that as long as the taxpayers make an informed decision and give written consent, then there is nothing wrong with offering such products.
As IRS tax code becomes more confusing, an ever increasing number of consumers, unable to decipher tax filing guidelines, have been seeking help of tax preparers. With tax problems growing daily, tax services provide tax resolution for frustrated consumers. It may be that in their frustration and trust in the tax preparer that certain consumers take advantage of refund loans without understanding the true ramifications of such products. Any action by the IRS will add more burden on H&R Block’s shoulders as the company’s subprime mortgage unit has lost more than a $1 billion lately.
The basic problem with these hyper inflated interest rate refund loans is that consumers don’t fully understand the loans’ intricacies. The IRS has taken some steps to protect consumers by eliminating fine print on loan disclosure documents, notices will now have to be printed on 8 1/2 inch-by-11 inch paper and written in 12-point type. The tax agency is taking further steps to protect taxpayer privacy such as, requiring Social Security numbers to be omitted on any tax return sent offshore for preparation.
Ironically, in June 2006, the Senate Finance Committee proposed a ban on disclosing a client’s personal tax information to a loan lender even if the client consents. The proposal never became law.