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Taxation & Estate Planning

: IRS Problem Solver Blog

IRS to End Disclosure of Taxpayer Debt Information

By Darrin Mish

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The 10 year practice where the IRS discloses how much taxpayers owe in back taxes and other debts will end soon. The IRS has been revealing this information on taxpayers, called tax indicators, to tax preparers upon receiving tax returns filed electronically. Originally, this practice was started to encourage electronic filing, which is more expedient and less error-prone. Today about 70% of taxpayers file their returns electronically so there is little reason for the IRS to keep up the practice. With the increased popularity of electronic filing, the IRS is able to issue refunds much quicker and deposit them directly as well, thus reducing the need for Refund Anticipated Loans (RALs). With direct deposit, you can receive your refund within 10 days or less.

The tax indicators have been traditionally used by banks and tax preparers who dispense Refund Anticipated Loans to evaluate the eligibility of taxpayers to receive such loans. Refund Anticipated Loans are given to taxpayers facing tight liquidity before they receive their tax refunds. Tax indicators would indicate how likely the IRS would deduct portions from the tax refunds of taxpayers for unpaid debts in the form of back taxes, child support and student loans.

These short-term RALs have long been opposed by consumer groups for being exorbitant in their interest rates and fees. In 2008, for example, $738 million in RAL fees were paid by 8.4 million taxpayers across the country.

However, tax preparer companies that dispense RALs like H&R Block Inc, Jackson Hewitt Tax Services Inc. and Liberty Tax Service contend that there is a place for RALs. Besides helping out taxpayers with their cash flow, tax preparers are also willing to take their fees out of the RALs thus customers do not have to pay them directly.

Last year, H&R Block gave out 2.1 million RALs. The significant number goes to show that most taxpayers require their refunds faster than the IRS can disburse them. In addition, RALs are useful to those who do not have personal bank accounts. They may use their company accounts, for example.

Liberty Tax CEO John Hewitt warned that removing the practice of disclosing tax indicators could push up the cost of RALs as the banks who underwrite the loans would be taking on more risk. Although they do conduct credit checks on individuals who apply for RALs, but these checks do not cover unpaid tax or government debts.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.