A LITTLE THIS-A AND A LITTLE THAT-A – WITH THE EMPHASIS ON THE LATTA

* I recently posted about the problems with Refund Anticipation Loans (RAL) and the companies that offer them. A commentary on the stock of Henry and Richard titled “H&R Block: Stars Are Aligning” had some interesting comments on the importance of RALs to fast food commercial tax preparation chains -

“For example, in fiscal 2009 Jackson Hewitt (JTX) derived $59.9 million of revenue from “financial product fees.” According to analysts and company representatives, greater than 85% of this line item was RAL and RAC fees that have minimal associated costs (according to management it is roughly 80% margin). At 80% margin this represents 104% of pretax earnings of $45.9 million. Simply put, Jackson Hewitt loses money without RAL and RAC fees.

Another large competitor, Liberty Tax, generated $23.8 m(illion) of revenue in ‘bank product and tax discount income’ versus $20.8 million in pretax earnings. Assuming Liberty Tax’s financial services revenue has similar margin characteristics to those of JTX’s, Liberty would also generate almost all of its earnings from RAL / RACs.”

* A post from TAX PROF Paul Caron on “Testimony at Yesterday's Tax Reform Task Force Hearing” led me to read the testimony of John Irons of the Economic Policy Institute at a recent meeting of the President's Task Force on Tax Reform.

On the subject of “Simplicity” Mr. Irons says –

“First, you should take Austan Goolsbee’s advice on the Simple Return, which allows the IRS to fill out tax returns and mail them to taxpayers who could then simply sign and return.”

I am surprised that this idea is still being seriously talked about. It is a Very Bad Idea, as I pointed out in a post with that title back in October of 2007 when BO proposed the concept during the Presidential campaign -

“Taxpayers should be allowed to determine if they will claim the standard deduction – and not be told, or even suggested, by the IRS that this is what they should do. Individual situations change from year-to-year – how does the IRS know that a taxpayer is better off filing a short-form simply from his W-2 and Form 1099-INT information. Taxpayers should also be allowed to consult a competent tax professional to determine if the standard deduction or a short-form will result in the least tax liability.

Let’s face it. There are a lot of taxpayers who would save mucho dinero by itemizing or taking advantage of various other tax adjustments or credits – but who would simply sign a short-form and pay a lot more tax then they would or should have to if the IRS sent them a pre-prepared return and requested a signature.

And looking at the issue from the government side – who is to say that the only income a taxpayer has to report is included on the W-2 and Form 1099-INT information that the IRS has in its computer matching program. Besides, pre-printing and mailing out such forms would be a waste of the government’s money.”

* This has nothing to do with taxes. As a “twit” I do not "follow" many other “twits” – mostly fellow tax bloggers and tax professionals. However I do follow the step-father of my cousins Nell and Anna - Michael McKean, the actor of “Laverne and Shirley”, “Spinal Tap”, and “A Mighty Wind” fame who is currently appearing on Broadway in “Superior Donuts”.

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Michael recently participated in some specialty tweets under the categories “#cowfilms” and “#oxymorons”.

Cow films (from Michael and others) –

• Even Cowgirls Get the Moos
• Dirty Ranching
• Beverly Hills Cow
• The Udder Bovine Girl
• Barn Free
• The Pasteurization of Emily
• S'cream

Oxymorons (from Michael) –

• Fox News
• Larry King Live
• Greater Newark
• Reality Television {my favorite!}

Michael is good to follow on Twitter, as he often “tweets” entries in similar cool categories.

TTFN

TESTIMONY FROM THE CONSUMER FEDERATION OF AMERICA

A post at 21st CENTURY TAXATION by author Annette Nellen, CPA/Esq., tax professor and Director of the MST Program at San José State University, which was titled “Regulating Tax Return Preparers” led me to her article at cpa2biz.com, also titled “Regulating Tax Return Preparers”, which in turn led me to testimony given by Jean Ann Fox, Director of Financial Services for the Consumer Federation of America at the June 30th IRS public forum on Tax Return Preparer Review.

I had overlooked this testimony during my original review of this public forum because I concentrated my attention on the presentation made by the Tax Preparer Panel, which included representatives of various membership organizations such as NATP, NEA and NSA.

The Consumer Federation of America is an advocacy, research, education, and service organization that deals with such issues as health, insurance, financial services, agriculture, food safety, housing, firearms, product safety.

The testimony, supporting the regulation of tax preparers, also included extensive comments on the evils of Refund Anticipation Loans (RAL). The CFA and other similar consumer protection and education organizations, and I, have been talking and writing against usurious RALs for years.

The presentation stated that “One of the Key Reforms to Prevent Abuses by Tax Preparers is to Ban Refund Anticipation Loans”. Here are some of the facts that were presented in the testimony –

“For a typical $3,000 RAL, consumers pay finance charges that range from $62 to $110. If all fees are used to compute the cost of this ten day loan, the annual percentage rate ranges from 50 to nearly 500%, depending on the size of the loan.

Tax refund loans are marketed mostly to low-income taxpayers. IRS data indicates that 85 percent of taxpayers who applied for a RAL in 2007 had adjusted gross incomes of $38,348 or less. In 2007 nearly two-thirds of RAL borrowers (5.44 million families) received the Earned Income Credit, the nation’s largest anti-poverty program {that highlight is mine – rdf}.

Mixing tax preparation with refund anticipation loans has a negative impact on the integrity of tax administration. This promotes tax fraud by preparers . . .

NCLC {National Consumer Law Center – rdf}, CFA and other consumer groups submitted extensive evidence indicating that RALs do provide tax preparers with an incentive to inflate refunds and cited statements by fraud experts and IRS criminal enforcers that RALs aid thieves in commission of tax fraud.”

I was pleased to see that the testimony also stated that the “IRS Should Provide Free Electronic Tax Return Filing”.

The CFA feels that –

“A free direct electronic filing program at www.irs.gov is long overdue. Americans have been able for years to apply for federal student financial aid on www.fafsa.ed.gov and for Social Security benefits at www.ssa.gov. Many states make it possible for citizens to file state tax returns electronically for free.”

And that –

“Enabling taxpayers to file electronically for free with the Internal Revenue Service will benefit taxpayers tremendously. It will save taxpayers the fees charged by some commercial preparers for electronic filing. It will permit electronic return filing without the opportunity for commercial marketing of extraneous products and services {this opportunity now exists under the current IRS online “Free File” program – rdf}. By allowing free direct electronic filing with the IRS, taxpayers would be able to bypass commercial preparers that might exploit or share their personal, confidential tax information for non-tax purposes.”

As I have mentioned many times before, New Jersey provides for free online electronic filing of many NJ-1040s for full-year residents at NJWebFile. Unfortunately there are restrictions on the amount and type of information that can be submitted via NJWebFile, so the system does not allow for universal electronic filing of state income tax returns. The number of W-2s and 1099s per return are limited, and those who report income from the federal Schedule C and partnerships and subchapter S corporations cannot use NJWebFile.

As a NJ tax preparer I am required by law to file NJ state income tax returns electronically, unless the client elects to “opt out” and signs a form to make the election.

I do not file my federal returns electronically because I do not use tax preparation software and I refuse to give the IRS my fingerprints.

I have said it many times before - if the IRS would allow taxpayers, and tax professionals, to file federal income tax returns directly with the IRS online for free I would gladly submit the 1040s (and 1040As) I prepare in this manner.

In her presentation Ms Fox also encouraged the IRS to resume work on its Customer Account Data Engine (CADE) return processing system. According to Fox, the IRS CADE system would allow the Service to issue refunds in a few days, instead of the current 8 to 15 days it takes to issue a refund. But “apparently the IRS stopped work on CADE”.

The CFA testimony makes the following conclusion –

“The IRS should ban loans secured by expected tax refunds and institute licensing and supervision of tax preparers in order to safeguard consumers and the tax system. In addition the IRS should speed up the processing of tax refunds and make direct free electronic return filing available for taxpayers.”

A conclusion that I can agree with 100%.

TTFN

TDHTDA!

Too Damned Hot To Do Anything!

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I am not only unmotivated to get back to the GD extensions, due to my 1040 Free time-off, but this heat had drained me of all energy.

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I have been keeping up with online tax blogs and articles, and I just had to comment on an article from WEBCPA.com titled “Government Probes Tax Refund Anticipation Loans”.

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I first read about the GAO study in yesterday’s (June 9th) post at Kay Bell’s TAX BLOG at BankRate.com. In “More Anti-RAL Efforts” Kay points out –

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“It's quite clear that Uncle Sam doesn't like refund anticipation loans, or RALs. Congress and other government agencies have been trying for years {and rightfully so – rdf} to eradicate these high-interest loans that impatient taxpayers get instead of waiting for their official IRS refund checks.

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The latest effort to end the loans, or at least keep the heat on providers, comes via a Government Accountability Office, or GAO, undercover investigation of tax preparers earlier this year. The Congressional investigative arm wanted to find out what tax preparers disclose to clients about the loans' fees.”

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The WEBCPA.com article gave more detail on the investigation. The various businesses offering RALs that the GAO investigated included –“immigrant assistance centers, seasonal tax preparers operating out of trailers, auto dealers and rent-to-own stores that offered to apply the tax refund toward purchases, and even shoe stores. The report includes photos of several of the businesses. A photo of the shoe store shows a sign in its window offering ‘free shoes with processed tax return’."

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That is a new one on me – tax preparation in a shoe store! The best I had seen was a sign in a barber shop that advertised tax preparation services within. You could get your hair cut, a manicure, and your tax return prepared all in one sitting! In my early days in the business I had looked into renting a desk at a local real estate or insurance office to prepare tax returns – but I had never considered renting a chair at the barber shop!

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Granted the great unwashed masses have been known for lapses in judgement. But I can’t imagine anyone with an ounce of intelligence going to a shoe store to have their tax return prepared. You wouldn’t go top a bakery for a root canal. For once there is something worse than going to Henry and Richard.

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But then after 36 years of dealing with the public nothing should surprise me anymore.

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Keep cool!

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TTFN

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PS – Check out this week’s postings to ASK THE TAX PRO.