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CPA says IRS Tax Refunds via E-File make Instant Tax Refund Loans Obsolete

Wilmington NC CPA firm

The chains will become more expensive in 2011. Try self preparation using online software. If you lose confidence during the process, please consider calling us at 399-2705 for a free initial tax preparation consult.

Rapid Anticipation Loans (RALs), typically offered by  H&R Block, Zip-Zap, Jackson-Hewitt and Liberty Tax Services were dealt a two prong blow this year.  RALs are short term, high interest consumer loans backed by an expected IRS tax refund IE the strongly promoted “Instant Tax Refunds,” usually available within 24 hours after E-Filing the tax return.  Supposedly 40% of H&R Block customers utilize RAL programs and Liberty Tax Service sold 300,000 of them last year, according to a Star News article today.  And H&R Block stock price dropped over 10% as shareholders realized the loss in profit potential!

Why RALs may Disappear

  • The IRS will no longer report whether there are federal liens or other claims against a taxpayer’s expected refund to any Bank, essentially eliminating the guarantee which allowed them to make the RAL.
  • The IRS is able to deliver tax refunds in 8-14 days if a Form 1040 is E-Filed and the taxpayer elects direct deposit into their checking account.  In addition the IRS is now requiring E Filing for most tax preparers.  So there is little reason to pay high fees for a bank product except when there is no checking account available, or cash flow is extremely time sensitive.
  • President Obama addressed some of the more egregious issues Bush allowed the credit industry to implement, which specifically included RALs for tax refunds.

Negative Implications of RALs for Tax Refunds on Tax Preparation Fees

RALs are considered predatory.  H&R Block settled a lawsuit with New York City in 2002 over their RAL services.  Typically low income families, who qualify for the Earned Income Credit, pay the chains, and their associated banks, large fees and usurious interest to obtain tax refunds more quickly.  I worked at one of these chains for a season, albeit awhile back. While the fee itself for the bank product was limited by law, the fee for tax preparation went up when a bank productfor the tax refund was used. Over $300 in one case. 

“Tax preparation fees at the major tax chain retail outlets are usually been more than at CPA firms.  And now they’ll rise even higher to compensate for the loss of a significant revenue stream.”
Gary Bode, Wilmington NC CPA and Tax Accountant

Try Self Preparation with Online Software

The chains like Liberty Tax Service, H&R Block and Jackson-Hewitt rely on their great tax preparation software for return accuracy at their retail outlets.  Not the expertise of their tax preparers.  So try doing it yourself using their online programs, or TurboTax, to lower your tax preparation fees. Generally you are charged only when you E-File.  If you lose confidence during the process, please consider calling us for a free initial tax preparation consult at (910) 399-2705.