Tax preparation tips trip up consumers
The Cleveland Plain Dealer - March 6, 2012
Several Northeast Ohioans who turned to tax services for help say they wound up losing money.
One consumer said she agreed to take a $100 refund anticipation loan, sometimes known as a RAL, from a tax preparation service because she was unemployed and wanted to get her refund faster.
The preparer refused to tell her how much its services would cost but then subtracted more than $650 in fees from her refund. It refused to release the refund to her until she paid another $50 for the loan, she said. The consumer, who wanted to remain anonymous, said the service still hasn’t given her copies of her tax returns, which she needs to fill out financial aid forms for her college-age child.
Another reader reported that her adult son lost his paycheck to fees after he went to a check casher for tax help. He borrowed against his refund, but when the IRS didn’t issue the refund as expected, the check casher kept his next two-week paycheck to repay the advance.
Crackdowns by the IRS and bank regulators have forced most banks out of the refund anticipation loan business. A joint report issued in January by the National Consumer Law Center and the Consumer Federation of America warned that “low-income taxpayers still remain vulnerable to profiteering.”
Although the number of RALs have dropped dramatically, tax preparers are pushing a sister product, the refund anticipation check, or RAC, which can carry what David Rothstein of Policy Matters Ohio calls “junk fees.”
RACs were originally marketed to low-income consumers who didn’t have bank accounts and therefore weren’t able to have the IRS direct-deposit their refunds into their accounts. The RAC inserts a middleman into the return process by diverting the refund to a temporary bank account, from which the preparer (and often, affiliates) deducts fees and then forwards the remainder on to the consumer.
But with the demise of RALs, some preparers are pushing RACs to consumers with bank accounts.
The report by the Consumer Federation and National Consumer Law Center said that RACs allow tax preparers to pad and hide their fees.
When the Consumer Federation sent shoppers to tax preparation services, many reported they received low-ball price quotes or were refused quotes. Because some preparers refuse to release copies of a consumers’ returns until after the refund is issued (and the fees are deducted), consumers may not realize how much they were charged until after the fact.
The report is posted at nclc.org.
This tax season, consumers should bear in mind:
• Low- to mid-income taxpayers may be eligible for free tax help through volunteer sites throughout the country. In Cuyahoga County, check refundohio.org or call 2-1-1 for locations. Elsewhere, taxpayers can find free tax preparation help through the IRS (1-800-906-9887).
• Taxpayers who use a tax service should first check the preparer’s Better Business Bureau report.
• Taxpayers can get refunds fastest if they e-file and arrange to have the IRS direct-deposit their refunds into their bank or credit union accounts. For more information, visit IRS.gov.
• Consumers should insist on a price quote before agreeing to use a tax service and make sure they get a privacy notice and a copy of their contract. The preparer should provide a copy of the taxpayer’s return and a breakdown of fees charged before the return is filed.
• Rothstein advises taxpayers to avoid RALs, RACs or any advance against a refund because these eat up a sizeable chunk of taxpayers’ refunds.
Additionally, the IRS issued an alert this week about tax scams that target senior citizens or others who make so little money they usually don’t have to file returns. Promoters falsely inflate refunds due to the unwitting taxpayers, often by claiming they are eligible for stimulus money or for college tax credits for tuition they paid long ago. The promoters apparently arrange to get a part of the refund. Taxpayers who encounter the scheme can report it to the IRS at 1-800-829-1040.
CFPB accepting loan complaints The Consumer Financial Protection Bureau (consumerfinance.gov) is now taking complaints about private student loans. Students who took out these loans can contact the bureau about issues including problems with repayment, confusing or deceptive marketing or terms, problems arising from deferment and forbearance, as well as debt collection and credit reporting issues.
The bureau opened in July and has been steadily working to take on the duties that Congress outlined for it.