Tax Refund Advance

| January 3, 2012

In difficult financial situations, obtaining a tax refund advance can sometimes be the difference between having a home or losing it. This need has not diminished considering current economic conditions and many private citizens continue to request a tax refund advance to make ends meet, as waiting the three weeks to obtain their refund check is sometimes too long. Recent crackdowns by both individual states and the federal government’s IRS have made the market for a tax refund advance slightly different than years past. It is now important that those who have come to depend on rapid cash advances in lieu of their tax refunds be educated on a few of these changes, in order to adequately prepare.

We’ll first cover a few statewide issues and court proceedings involving the tax refund advance service offered by certain tax preparing agencies. This information is generally pertinent to only the state in which it occurred, but, considering the environment of scrutiny that tax refund advances seem to be under, it is still important information to understand. In the state of Illinois, the attorney general has issued a warning concerning tax refund advances, stating that they should be taken with great care. This occurred in 2003 and was followed by a lawsuit against H&R Block’s refund anticipation business wherein a large-$360 million-settlement was deemed inadequate. In 2006, in the state of California, the attorney general there brought a suit against H&R Block’s same refund anticipation service, stating the the loans presented were unlawful, as interest rates often exceeded 500%. These court proceedings and warnings preceded the largest blow to the tax refund advance industry to date.

The IRS significantly reduced the number of tax refund advance services offered when it announced that it would no longer be publishing a debt indicator when tax refunds are being submitted. This debt indicator is a one letter code to indicate the level of federal debt the private citizen holds, such as federal student loans, military taxes or back taxes. Previously, this information was used to determine a person’s eligibility for tax refund advances, and without it, a refund loan cannot be proposed safely. This single change led to the closing of many smaller chain’s tax refund advance services, and has even reduced the number of small preparing agencies in total, as the revenue from tax refund advances had previously been driving the business. All but two banks have removed themselves from the tax refund advance industry, and only large, national tax preparer chains continue to offer the service.

Category: Tax

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