Thursday, October 29, 2009


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, 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 . . .

{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 is long overdue. Americans have been able for years to apply for federal student financial aid on and for Social Security benefits at 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%.


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