Earned Income Credit, RALs, good consumer websites?

One ray of hope on the horizon is CADES system being implemented (piecemeal) by IRS. The system started a year or so ago processing just 1040ez forms, then being expanded yearly to include the more complicated returns, until finally one day all efiled returns will be processed under it. Last year 5 millions returns were so processed and direct deposits were made 24-48 hours after ACKNOWLEDGEMENTS were sent to ERO's. Imagine that, efiling a return one day and having money in your account within two days! Now why would/will anyone use an RAL in the future when they can have their refunds so much quicker? Another more biting question: Did HRB and JH, et al indicate to clients that their refunds could/would have been processed under CADES and thereby be more able to be refunded quicker without having to resort to an RAL? IMWTK!

ChEAr$, Harlan Lunsford, EA n LA

Reading some of the sad stories at the link has prompted me to respond, in hopes of providing some clarification, although I doubt that the readers of this newsgroup or the ones who need the information. I am not a spokesman for H&R Block, nor am I in favor of refund loans or any other type of high-interest advances. If the IRS can shorten the span between receiving a return and releasing the refund, these loans will be rendered obsolete. I look forward to that day. At H&R Block, the word LOAN is in about three inch high letters on the application. Do all preparers adequately explain everything involved? Probably not, and it is a long document (which includes the proviso about offsets). With the exception of the IRAL (instant loan), the preparer has no idea if the loan will be approved or not or when HSBC will release the money. Yes, it's a problem if a preparer tells the client that they'll get their money on a specific day. However, some clients hear what they want to hear--tell them "if the loan is approved, the money is usually released within 1-2 days," and they hear "you'll have the rent money on Tuesday." Apparently quite a few people do not realize that there are charges in three areas: tax preparation, a bank fee, and the actual interest on the loan. No interest is charged at H&R Block if a loan is denied, so they actually receive more money than was originally indicated. Sometimes they are surprised because they owed Jackson Hewitt money and switched to H&R Block, not knowing that the companies use the same bank. H&R Block cannot help them with offsets, it is in the hands of the IRS or HSBC (it is illegal for a tax preparer to directly receive a client's refund). There is no additional compensation for preparers when a client takes out a loan, so there is no incentive for preparers to push these products on their clients--it basically exists as a convenience for clients who want it. H&R Block would get their clocks cleaned by their competitors in January and February if they didn't offer these products, but they seem to end up as the whipping boy for all of the national tax preparation firms. If states hadn't repealed their usury laws, we wouldn't be having this discussion; btw, a new federal law is now in effect that prohibits these loans to military personnel--maybe that protection could be expanded to the general population?

About 25 years ago the authors of Unix patented a bit.

One bit in the unix kernel, the suid (Set User ID) bit. It has a patent and served as a very useful unix feature. The patent is mentioned briefly in Kernighhan & Pike's Unix book. The IRS agreed to supply all EROs (Electronic File Originators) with a much more valuable single bit, though I suspect the IRS did not patent it: The Debt Offset Indicator. When a state child support agency or student loan originator etc notifies the Department of the Treasury's Financial Management Service (A parallel government agency to the IRS) to offset a taxpayer's refund to pay back taxes, child support or student loans, FMS notifies IRS to offset the refund and the IRS sets that bit when acknowledging the EFiled tax return, and sends that bit back to the ERO. So the folks working the RAL and any other return knows if the refund will be heldr, at the instant they receive the E-Postmarked Acknowledgement. The Lender's risk is thereby minimized, and the RAL industry lives another day.

Last year Nina Olsen, the Taxpayer Advocate, who reports directly to the IRS commissioner but by statute is required to send two annual reports to Congress without going through the commissioner, meaning she has a dotted line relationship directly to Congress, recommended dropping this bit from the acknowldgement. Since this one single bit plays such a critical role in the RAL industry, lots-a-luk.

-- ArtKamlet at a o l dot c o m Columbus OH K2PZH

One reason might be cheap check cashing offerred by the RAL's banking partner.. From what I read, most RAL clients are what the industry calls the "unbanked." Those with no bank accounts and who pay an unreasonable amount to get te checks cashed.

-- ArtKamlet at a o l dot c o m Columbus OH K2PZH

Is this accurate? H&R and another store-front office that I used to work for both paid the preparer a small additional commission for selling a RAL.

-- Don EA in Upstate NY

The extra fee for the RAL went away several years ago.

Is there a law to that effect? People who arrange loans often get commissions from the lender. I'm sure you don't mean to say that these loans are made without interest. That said, if the preparer is the one making the loan, it does earn income on the interest it earns. Stu

When I started working for H&R Block in the '90s there was an extra fee of $20 added to bank products. The tax preparer received a commission from this fee. Several years ago it was decided that this extra fee was actually interest, and because H&R Block isn't a bank it is not proper to charge interest, so the fee was dropped. That is how I remember it anyway. Preparers now get nothing extra for doing the paperwork for a RAL. The taxpayer is still paying interest on the loan. Moderator: While RAL's are, in my rarely humble opinion, an ethical abomination, the fees are not interest. They are akin to loan origination fees.

IRS Pub 1345 also prohibits EROs from charging taxpayers a fee for most electronic services including RALs.

The bank can charge a fee for banking services.

Not that most RAL clients would use this, but mortgage loan origination fees are deductible as interest/points.

-- ArtKamlet at a o l dot c o m Columbus OH K2PZH

Good point. There are actually two types of fees involved in most tax return bank products. One is definitely akin to a loan origination fee. It is fixed in amount and paid both for actual loans (RALs) and also for the other non-loan products that allow the tax preparation fees to be deducted from the refund. The other fee, which is charged only for RALs, is more akin to interest. It is a function of the amount of the refund, but not of the length of the loan. The truth-in-lending disclosure will state an effective rate of interest based on both of these fees and the typical length of the loan. For the fees charged by a major player, see

-- Don EA in Upstate NY

Admittedly I haven't checked lately, but I used to charge extra 15$ for electronically filing in the early years, but gradually reduced that to zero, since 99.9% of my returns are now efiled. But I do think I could still do it, even though I have no extra cost these days. In earlier years each efiling cost me an extra 5$ as I recall. ChEAr$, Harlan Lunsford, EA n LA

This is from Pub 1345: If you charge for RAL you charge everyone the same RAL fee. No contingent RAL fees.

Fee Restrictions

Authorized IRS e-file Providers may not base their fees on a percentage of the refund amount or compute their fees using any figure from tax returns. When assisting a taxpayer in applying for a RAL or other financial product, the Provider may charge a flat fee for that assistance. The fee must be identical for all customers and must not be related to the amount of the refund or the financial product. The Provider must not accept a fee that is contingent upon the amount of the refund or a RAL or other financial product from a financial institution for any service connected with a financial product. The IRS has no responsibility for the payment of any fees associated with the preparation of a return, the transmission of the electronic portion of a return, or a RAL or other financial product.

-- ArtKamlet at a o l dot c o m Columbus OH K2PZH

That's what I thought. ACtually I wasn't even thinking about RAL's and associated "fees", just a fee for electronic filing. ChEAr$, Harlan