It’s only a Paper Refund (what you can do to keep ALL of your tax refund)

Many people will not think about taxes, until the end of January, which is the date by which your employer must have given you your W-2 for 2013.  At that point, those who are due to get a refund will be scrambling to get their returns done quickly, so they will be able to get their refunds ASAP.  (Those who will NOT be getting a refund, will be place their W-2s into a desk drawer and ignore them until about the 8th of April, or so)  Even though there are plenty of sites throughout the Country where taxpayers can get their taxes done and filed by trained volunteers for FREE, many people will go to a Storefront Paid Tax-Preparer and pay a huge percentage of their Tax refund, when they don’t have to.  The IRS coordinates the FREE sites, which are called VITA sites, for Volunteer Income Tax Assistance. 

Plenty of ads on TV and radio are running for these Storefront Paid Tax-Preparers, already.  “Come to us and we’ll do your taxes!” and “WE can get you your refund faster?” are among the common claims.  They have spiffy names like “Uncle Sam’s Free Money,” or “Cash Right Away.” What these ads don’t tell you is that there are plenty of places where you can get your taxes done for FREE and receive Every penny of your refund.   

At the begging of 2013, Consumer Courage was part of a coalition of Non-profit agencies that was attempting to warn people about this problem.  (You can view the Press Release HERE).  The overwhelming majority of people who waste their money on this service are working poor.  In 2010, 92% of the people who used these Paid Tax-preparers were low income – with the typical family earning $20,000.00 for the year.   We may have another event this year to bring attention to this problem.  (We learned two important lessons.  One is that we can probably just use the same press release and articles from year-to-year.  The second is that since not too many people are willing to come out at 8:00 in the morning to hear a bunch of do-gooders prattle on about tax refunds and fees and stealing, we should probably spice it up, by claiming to have found Bigfoot, or something) 

Editor’s note of impatience:  The next time someone utters the phrase “I captured Bigfoot!” or anything even remotely close to that, they get should get fined and spend the night in jail. 

What makes them tick?

These places all operate on a few basic assumptions:

    • There are people who will do anything to get cash in a hurry;
    • These folks can be scared into thinking they have no other alternatives; 
    • If the service is for something that makes people uncomfortable (like doing your taxes), people will ignore the price, just to say that they’ve taken care of it;
    • Their customers will not realize that VITA sites exist; that they are FREE; that they have flexible hours and they will get their refunds in about a week;  

Fraud is part of the business model

A study by the Consumer Federation of America and the National Consumer Law Center showed that the workers at these Storefront Tax-preparers are trained to mislead their customers about what their services will cost.  A low-ball offer is made (“We’ll do your taxes for $50.00”) and the taxes are completed. (“Just sign these release forms so the IRS has permission to send us your check”) Then, when the check comes in, they surprise the customer with a mountain of fees that they were never told about.  Document preparation fees, processing fees and check-cashing fees are par for the course. 

To make matters worse, they will charge more, depending on what the refund will be.  They’ll spend the same amount of time on two different returns.  But, if one gets a refund of $1500.00 and the other one gets $300.00, the guy who is getting $1,500.00 will get charged more.  Sound fair?  It isn’t.  The whole scheme is designed to take as much of your money as they can, while keeping a straight face. 

This whole process reminds Consumer Courage of a scene from Paper Moon, which is set in the 1930’s.   Ryan O’Neal distracts the cashier at a general store, while he pays $5.00 for an item and tricks her into giving him $10.85 in change.  Everything seems pleasant and fine, while they distract you from noticing that they are charging you a fee to give you your own money!

“I won’t pay those fees! You didn’t tell me about them.” you scream as you stomp out of the store.  You make it halfway down the street, when you realize that they still have your refund check.  Wanna call the IRS and complain?  Good luck with that.  How quickly do you think they’re gonna get back to you in the middle of tax season, after you’ve signed papers allowing the Paid Tax-preparer to charge you those fees in the first place?

“There oughta be a law!”  Right you are.  Unfortunately, there isn’t one.  Ohio consumers have very few protections when it comes to the Storefront Tax Preparation industry. 

So, what can you do to avoid this trap and keep ALL of your tax refund?

Take these few simple steps (and, tell everybody you know) to prevent you from spending your tax refund on a FREE service:  

    1. Go to a VITA site and have your taxes prepared for free: Call the United Way’s First Call for Help line 2-1-1 and make an appointment for this FREE service (most sites have evening and weekend hours); 
    2. Get a bank account:  Refunds are direct deposited by the IRS.  If you have a bank account, it takes about a week.   
    3. DON’T go to a storefront ‘paid tax-preparer.’ 

This year, do something special with your tax refund…..Keep it!

Posted by: Mark Wiseman (who entered family lore with his reaction to another scene in Paper Moon)

Maybe I just shoulda stayed in bed………what morning radio and your Taxes have in common

Of all the things Consumer Courage thought we’d have to warn people about in October, Tax-refund loans was NOT one of them.  But, this morning, Consumer Courage heard a strange commercial on the air, on our way to hitting the snooze button (it’s not so much that the radio people have the nerve to wake me up every morning that sticks in my craw.  It’s more the fact that they manage to be so damn chipper at 5:45 a.m.  I mean, can’t they act even a little bit tired?…. but, I digress)

The ad ran thusly:

“C’mon in to our dealership and have your taxes done!  Why should you wait until January for your money? We’ll do your taxes for 2013 right now!  Just bring in your pay-stubs and we’ll do your taxes and tell you how much the Government will give you in January.  Then, you can use your refund to buy one of our cars!”

Let’s review

Here’s the premise: they want a CAR SALESMAN to do your tax return 5 months early; and then sell you a car, based on what they guess your tax refund amount will be.  This reminds me of a scene from the movie “Stripes.”  John Candy is playing poker with a fellow soldier who is not the sharpest guy.  After looking at his buddy’s cards and realizing that he is going to win the hand, John (pretending to help the poor guy) utters the famous line ‘Go ahead….Bluff me!’  The metaphor is perfect, here.  THEY prepare your return; THEY make a separate tax-preparation fee based on how high your refund is; THEY make another commission selling you a car (and THAT is based on how much they can jack up the price) Does this sound good to anybody?

Eee-gads.  Where to start?

First of all, there is no shortage of print materials about what an incredibly bad idea, getting a Tax Refund-Anticipation Loan (or RAL) is.  (You can click HERE,  HERE,  or HERE to find an echo of the message to stay away from Tax Refund Loans) You will be paying an artificially high percentage of your refund to somebody whose business model is based on their ability to rake you over the coals. (It’s no secret that the typical RAL fee depends on how high the tax refund is)

Second of all, the refund-loan people are not signing your return and are (almost always) NOT public accountants. Why should this matter?  Because, if they make a mistake and short the IRS,  YOU will be the one who has to pay the amount you really owe.  (part of the problem with this idea is that they have  a tremendous incentive to somehow, some way show that you are getting a refund.  After all, if it looks like you owe money to the IRS, do you think you are going to buy one of their cars? So, you are having someone who has a financial incentive to ‘miss’ bad news prepare your tax return) 

“But,” you say “my tax return was Easy-Peezy last year.  I only have one job and don’t take many deductions.  How hard could it be to do my taxes and give me the right amount back?”   You’re right, it’s not so hard . . . . when they do this in January.  At that point, there’s no question about how much you made, and how much the Government has to repay you.  No guess-work.   But, if they do your 2013 taxes, before the year has ended, they are guessing about how much you will make and how much you should get back.  (if they’re not guessing, at least they are trying to predict the future)  What they don’t tell you is that you are the only one who is gambling, here.  They make their money either way.

Since they can look into the future, let’s try to do it ourselves.

What will happen if you let the car salesman do your taxes now, but they figure out in January that it was wrong and your refund is smaller than they thought.  You’ll get a call from the car lot that goes something like this:

“Uh yeah, remember that car that you bought from us?  You know, the one that had a 30-day warranty; but, had the transmission break on the 33rd day?…..and, after we refused to honor the warranty, you spent your Mother’s last thousand dollars to fix it.  Yes, that one!  Do you remember how we reduced the sale price of the car by $2,000, because that’s what your tax refund was going to be?  Unfortunately, the IRS says that your refund was really only $800.00.  Boy is egg on our faces! We’re really sorry. 

Oh, you don’t have the money?  Gee, that’s too bad, because you signed a paper that says that you understood that we’re not accountants and that we just might ‘goof up’ when making out your return (nobody’s perfect!).   And, I don’t know how to say this; but, you also signed a paper that said that if the refund was reduced for any reason (and, I realize that we told you that this would NEVER EVER happen ….Woops!) – you signed a paper that said if this ever happened, we would be able to repossess your car to make up the payment.

What’s that? The car still doesn’t run? Oh, don’t worry about that, we have a tow-truck.  (this happens all the time!)”

C’mon how much could change in six months, anyway?

Besides the list of 5 things that the IRS says to look out for when using a paid tax preparer (By the way, our car dealer violates almost every one of the IRS’ no-no’s) Here is a list of things you don’t think could happen (but just might) that would put you on a fast-track to hearing the conversation that you just read about.

    • Tax law changes – How many of us remember that the tax laws changed on the last day of December 2012?  That’s right, when the ‘sequester’ kicked-in at the end of 2012, the IRS had to re-do some of their rules and manuals and it took until mid-February for them to start handing out refunds.   So, THAT could change; 
    • No money for X-mas bills – Nearly everyone counts on the tax refund to give them a little pick-me-up when the December credit card bills come due.  If you can actually remember using your income-tax refund check to pay bills last year, you’re probably gonna need that money again NEXT year. Don’t spend it now!;
    • Job changes/life changes – If you can guarantee that you’ll still have the same job you’re in now and make the same amount of money come January, raise your hand.  And, that’s the point.  If you do your tax return now AND spend the money, any income hiccup that might occur between now and the end of the year would be all on you.

The next time you hear a commercial like this, if you’re even tempted to let a car dealer do your taxes 5 months too early JUST A LITTLE, hit the snooze button. (Or better yet – smash your alarm against the bedroom floor.  You’re better off asleep)

Posted by: Mark Wiseman (who would need a LOT of Starbucks, before he could be a morning DJ)

Consumer Alerts: Stay away from Tax Refund Anticipation Loans (RALs)

Would you pay yourself rent for using your own car?

Would you charge yourself a fee to grab some food from the fridge?

Would you pay someone else to borrow your own money?

Of course the answer to all of these questions is NO.  But, this winter too many people are going to say YES and pay someone else to borrow their own money.  Why would someone borrow their own money?  Mostly, because they are fooled into believing that it is a ‘low-cost’ way for them to get their tax refunds quicker. What taxpayers should realize is that there are places in Cuyahoga County that they can go to get their taxes done – FOR FREE, by calling United Way at: 2-1-1 for an appointment.  And, if they sign up for a checking account, they will get their money within a few days, without having to pay any of the bogus fees that the scam artists charge.

Every year ‘storefront tax preparers’ use the promise of quick tax refunds as a way to dupe taxpayers out of the cash that they have been waiting all year to receive.  The tax preparers convince the taxpayers to take out loans that will be paid back, when their tax refunds arrive.  Many people will fall for the lie that this system will be a quicker and cheaper way to get there tax refunds. These loans (called Refund Anticipation Loans ‘RALs’; or the new scam Refund Anticipation Checks ‘RACs’) are nothing more than wolves in sheep’s clothing. RALs and RACs work like this:

• Victims go to a store front to have their taxes done, in response to an ad that promises their refund check ‘right away’;

• They take a loan out for the amount of their refund check;

• The loan will be paid back when the check arrives – MINUS a mountain of fees that are added on by the ‘tax preparer,’    

Every year, Refund Anticipation Loans (RALs) suck Millions of dollars out of the economy. 

 • In 2010, according to a report from the National Consumer Law Center (NCLC) and the Consumer Federation of America (CFA)   taxpayers paid a total of about $386 Million in tax-preparation fees.

• An additional $500 Million is also lost, because these places charge bogus fees.

• Much of the Earned Income Tax Credit (which was created to build wealth in the low-moderate income community) winds up paying for these tax-preparation schemes

o In 2010, nearly two-thirds of RAL recipients (nearly 3.4 Million families) also applied for EITC;

 For those 3.4 Million families, much of the EITC money that they qualified for went to the company who gave them the RAL;

I might have to pay MORE than just a tax-preparation fee? 

Because the victims sign paperwork allowing the tax refund checks to go directly to the RALs/RACs storefronts, they are able to pile on bogus fees, in an effort to suck as much of your money out of the refund check as they can.  When you want to cash  your refund check and pay the loan back, you can also get charged for many ‘services’ that you never knew about and that required little to no effort on the part of the tax preparer.

Don’t they have to tell you exactly how much you’ll  be charged before you sign up?

No they don’t! Ohio has very few consumer protections in place to safeguard taxpayers who go to a storefront operation and sign up for a Refund Anticipation Loan.  The NCLC/CFA study found that RALs and RACs venders were trained to mislead consumers about the actual costs and fees of their services.  The higher your refund is, the more they charge you to do your taxes and process your paperwork. 

Among the shocking revelations from that study was a quote from a 2008 trade newsletter that taught tax-preparation storefronts how to use bait & switch tactics to swipe as much money away from the tax payer as possible:

o “The most successful e-file shops in the U.S. do not use price lists and they ‘lowball’ their tax preparation charges to get the customer in the door.…They then charge more for e-filing and bank products to make up for the ‘lowball’ price.

In other words, misleading consumers about the actual price of the product – and then zinging them with extra fees – is part of the business model for RALs/RACs! 

Who signs up for these costly loans?

Mostly the poor and people who are struggling to get by.  According to IRS data:

• 92% of taxpayers who applied for a RAL in 2010 were low-income. 

• A recent study from the Urban Institute found that the median adjusted gross income of RAL borrowers is under $20,000, and that one in four taxpayers earning $10,000 to $25,000 use a RAL. 

o This study found that “taxpayers living in extremely low-income communities are an astonishing 560 percent more likely to use RALs and 215 percent more likely to use RACs…”

How can you avoid this trap and keep ALL of your tax refund?

1. Go to a VITA site and have your taxes prepared for free: In Cuyahoga County, there are 23 sites (all with weekend hours) where you can get your taxes prepared FOR FREE Appointments can be made by calling United Way at 2-1-1. 20 of these sites are in the City of Cleveland 2. Get a bank account: The average time for the refund to make it to the taxpayer’s hands (if they have a bank account and e-file their tax return is about a week); 

3. DON’T go to a storefront ‘tax preparer’ or take out a RAL or a RAC: If you want to keep your whole tax return (which is money that you earned!), and if you don’t want to get ripped off by paying bogus fees for something you could get for FREE, do NOT go to a storefront tax preparer, or follow their advice to borrow your own money.

Posted by: Mark Wiseman