Treasury Speaks Out on Refund Anticipation Loans

The Treasury Inspector General on Tax Administration (TIGTA) published its research of 250 taxpayers on Refund Anticipation Loans (RALs). A tax preparer and client agree to the RAL, which gets refund proceeds to the client more quickly for a cost. About 10 million RALs are made per year. The TIGTA indicated that taxpayers would be willing to wait up to nine days for their refund to avoid an RAL (note: I have never seen a taxpayer receive a refund in nine days, but I guess nine business days might be possible if the return is electronically filed). Moreover, TIGTA findings that many taxpayers which took out RALs would have been eligible for free filing assistance through Taxpayer Assistance Centers, VITA or the IRS Free File Program.

While I stop short of calling for the prohibition of RALs (hopefully states DO look at whether these loans are within usury guidelines), I find them morally repugnant and hope that most CPA firms leave such techniques to retail tax preparers. The IRS has tried to market their free preparation services with some degree of effort; I am not sure whether suspicion of the government or some other reason is the root of the small number of people which take advantage of IRS assistance efforts.