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What to Expect with Tax Refund Anticipation Loans (RALs) in 2011
January 20, 2011 | 3489 views | Post a comment
BBB Explains Higher Risk and Cost of RALs
Austin, TX -- With tax season just around the corner, many Americans are looking forward to the expected refunds from their 2010 federal income taxes. Many people may also consider applying for a refund anticipation loan (RAL) to speed up the process of receiving the refunds that they expect. BBB http://bbb.org suggests consumers review how a recent change implemented by the IRS will impact RALs this year.
RALs are loans based on a taxpayer’s anticipated refund and they are currently offered by tax preparation companies such as H&R Block and Jackson Hewitt. Until this year, in support of RAL lending, the IRS would notify tax preparers about whether their clients had any debts that might offset the anticipated refunds. If no debt was indicated, the tax preparation company issued a RAL accordingly. However, in effort to encourage taxpayers to file their taxes electronically and set up direct deposit accounts instead of RALs, the IRS will no longer provide tax preparers with the debt indicator notification in 2011 and beyond.
The National Consumer Law Center http://www.nclc.org (NCLC) emphasizes that without the debt indication, RALs will be increasingly risky and expensive, as they won’t be estimated with as much clarity about the taxpayer’s expected refund amount. BBB advises consumers preparing for tax return season this year to consider using free alternatives, such as e-filing and non-profit tax counseling centers, to avoid the risk of having a loan with high interest rates.
For those interested in obtaining an RAL this year, BBB advises consumers to review the following checklist of what to expect:
· High Interest Rates. In 2009 the IRS cited a statistic from the General Accountability Office stating that the interest rates and fees for RALs vary widely, ranging from 36 percent to over 500 percent.
· Administration Fees. In addition to the interest rates on RALs, tax preparers can add on fees for administering the loans and these fees can range from $25 to several hundred dollars.
· Obligation for Full Repayment of the Loan. Even if the refund amount is less than the loan issued based on the anticipated estimates, consumers will be held responsible for paying the full amount of the loan in the timeframe agreed upon in the lending contract.
As consumers look to hire tax preparation companies, BBB offers the following tips:
· Check credentials ahead of time. It is very important to take the time to research tax preparation services well in advance to confirm all credentials. Keep in mind that only attorneys, certified public accountants (CPAs) and federally authorized tax practitioners may represent taxpayers before the IRS. It is also beneficial to find out if the preparer is affiliated with a professional organization that holds its members to a code of ethics.
· Don’t fall for the promise of a big refund. Be wary of any tax preparation service that promises larger refunds than the competition and avoid any tax preparers who base their fee on a percentage of the refund.
· Ask around. Get referrals from friends and family on who they use and then check the BBB Business Review on each tax preparation business at www.bbb.org http://www.bbb.org .
· Read the contract carefully in advance. Read tax preparation service contracts closely to verify the cost of services ahead of time. Also, be sure to confirm how the cost will be affected if preparation is more complicated or time consuming than expected. Additionally, be sure to find out whether or not the tax preparer will represent you in the case of an IRS audit.
· Think long term. Many tax preparation services only operate for the months leading up to April 18th. In case the IRS finds errors or in the case of an audit, consumers will need to contact the tax preparer in the future. Be sure to get your representative’s year-round contact information in case you have any questions or concerns.
To check the reliability of a company http://www.bbb.org , visit BBB.
About Better Business Bureau:
BBB's mission is to be the leader in advancing marketplace trust. BBB accomplishes this mission by creating a community of trustworthy businesses, setting standards for marketplace trust, encouraging and supporting best practices, celebrating marketplace role models and denouncing substandard marketplace behavior.
Businesses that earn BBB Accreditation contractually agree and adhere to the organization's high standards of ethical business behavior. BBB is the preeminent resource to turn to for objective, unbiased information on businesses and charities.
Contact BBB serving Central, Coastal and Southwest Texas at (512) 445-4748.
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