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Posted by Andrew on January 10, 2008, 9:46 pm
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So read this past week that the IRS is thinking of putting the kibosh on
those companies that offer 'anticipation' loans after doing your tax
returns, of course for a huge annualized interest rate.
What I wonder, and would like any insight is, how can the IRS do this
legally? Can they unilaterally control a firm from offering? What is their
jurisdiction in such a case? If it was the FTC, maybe so, but I just don't
get it.
Strictly my mind wondering....
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Regards -
- Andrew
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Posted by Paul Thomas, CPA on January 11, 2008, 8:58 am
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> So read this past week that the IRS is thinking of putting the kibosh on
> those companies that offer 'anticipation' loans after doing your tax
> returns, of course for a huge annualized interest rate.
Just to be clear here. The tax preparation firm isn't ~making~ the loan.
Nor does the lender prepare tax returns. Let's just take H&R, who prepares
the return, and as a separate "service" offers to fill in the paperwork (all
on computer now-a-days) for the loan application, which they forward to the
lender for approval. Two different companies entirely.
FYI: It's not at some high rate of interest, till you factor in the loan
application fees charged ~by~ the tax preparer. Remember that it ~is~ an
unsecured loan, so it'll carry a higher than prime rate. The deal is that
with direct deposit, the refund is in the bank in 9 to 15 days - so that is
how long the loan is for in reality. The fees, from what I've seen, are
bracketed by loan amount, so they aren't set by, or charged like regular
interest rate loans.
> What I wonder, and would like any insight
> is, how can the IRS do this legally?
Can they stop you from making a loan? No.
Can they stop telling the lender "the refund is good"? Clearly they can.
And the returns flagged for RAL should be sent paper checks - in 10 weeks or
longer.
If you were uncertain that your borrower had the ability to repay the debt,
you probably wouldn't make the advance.
> Can they unilaterally control a firm from offering?
They wouldn't deny the ability of the tax preparer to make loans, they would
take away the ability for the lender to verify the refund status as being
"good". Often times tax offsets eat up the proposed refund.
> What is their jurisdiction in such a case?
It's taxpayer data, and they don't have to release it as quickly as they do.
--
Paul A. Thomas, CPA
Athens, Georgia
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2007) - All rights reserved. >>
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Posted by Condor on January 11, 2008, 12:22 pm
Please log in for more thread options > What I wonder, and would like any insight is, how can the IRS do this
> legally? Can they unilaterally control a firm from offering? What is
> their jurisdiction in such a case?
You're correct that IRS cannot bar anyone from offering a loan in
anticipation that the lender will be repaid from the taxpayer's refund.
However, lender's don't like making these types of loans without almost
iron-clad assurance that they can expect IRS to direct deposit the refund
into the lender-controlled RAL bank account. That's how the lender counts
on being repaid.
Currently, lenders receive this assurance from IRS about 24 hours after the
taxpayer's return is electronically transmitted. IRS sends the transmitter
an acknowledgement file with a boolean, i.e., true/false, indicator
confirming whether the direct deposit designation on the tax return will be
honored. If the taxpayer owes back federal tax or non-tax debts to which
IRS is required by law to offset the refund, IRS, without technically
disclosing the existence of the taxpayer's debt to the transmitter, sends a
negative direct deposit indicator back with the acknowledgement file. When
the transmitter/preparer gets the negative direct deposit indicator, the RAL
is denied because they know the refund they would be counting on to repay
the loan very likely won't come through.
IRS is being pressured by anti-RAL interest groups to discontinue
transmitting the direct deposit indicator, be it positive or negative, back
with the acknowledgement file. If IRS were to do this, preparers most
likely would discontinue offering RALs since they would be too risky.
Condor
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by Arthur Kamlet on January 11, 2008, 12:36 pm
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>IRS is being pressured by anti-RAL interest groups to discontinue
>transmitting the direct deposit indicator, be it positive or negative, back
>with the acknowledgement file. If IRS were to do this, preparers most
>likely would discontinue offering RALs since they would be too risky.
There are many opinions out there that the lenders would not give up
such a lucrative business. Without the Debt Offset Indicator they
would just charge each taxpayer more for the loan.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by closet.disco.dancer@gmail.com on January 11, 2008, 10:08 pm
Please log in for more thread options the RAL industry has survived several tax seasons without the debt
indicator when it was eliminated during the mid 1990's. If it is
eliminated again, then the banks will probably just tighten the
criteria for approving them. without being preachy (don't think this
is the place for it) i just want to say that if more practitioners
were upfront about the total cost of this product, then there would
not be such an outcry for its elimination.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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