IRS delivered a Knockout Punch to RAL

[gkaiseril]

The banks could still provide the RAC, since there is no release of funds until the IRS makes the refund deposit. This product helps those taxpayers that do not have a checking or savings account get their money like a direct deposit with a fee.

The RALs are a different story, but since the first attempt at removing the offset flag, the banks have kept a history file on these borrowers along with a credit check, have the computer make a decision. Also many banks provide an answer and do decline bad risks within 72 hours or less. This action could cause the banks to raise the service fee and loss splitting so expensive that small firms may not be be able to provide this service, so only the larger services may provide this service.

Makes one want to look to Canada, where the tax preparation firm can either have an ownership interest in the bank making the RAL or directly make the RAL to the taxpayer.

[taxea]

I have never done a RAL and never will.

[OtisMozzetti]

we can live with it: 3-day money has had knockout blow

I believe that the lack of debt indicator will make it impossible for banks to approve RAL's to many but the most creditworthy, who seldom apply for RAL's anyhow.

It won't matter much, though, to the tax preparation industry as a whole, because those that seek fast cash will in most instances settle if they must settle for the 2-week money, i.e. for RAC's. It will probably still be true that those wanting quick money will be able to apply for RAL's, which convert automatically into RAC's if the RAL is not accepted by the Bank. All it will take is an honest statement to RAL applicants that a much higher percentage of RAL's will no longer be approved by the banks.

Yet another benefit is that the banks won't collect as many RAL fees and interest on the anticipation loans. Clients typically think of those bank fees as part of the expense of tax preparation; so in a way it will make tax preparation seem that much less expensive.

[taxmandan]

That the IRS has tried this before .. maybe ten, fifteen years ago or so. Eliminated the debt indicator. The banks continued to offer RALs, but only after doing real credit checks and then only for previous year RAL customers. Huge outcry from all concerned. Debt indicator was back the next year.

Anyone else remember that, or is this just a senior moment in reverse?

Update - The IRS eliminated the debt indicator in 1994 to cut down on RAL fraud. In 1998 congress set a goal of 80% participation in the e-file program. The IRS reinstated the debt indicator in 1999 as an incentive for the e-filing industry.

Ref: Corporate Welfare for the RAL Industry: The Debt Indicator. Congressional Record Oct 20 2005.

Yes, that was 1995, my first year in tax prep and boy was that fun! I worked for one of the two nat'l firms where that was the bread & butter business. Really angered the clients and the DDI came back the next year.

You don't need a RAL to get the prep fee deducted from the refund. Chase (now out of the business) had a RAC where the fee was deducted and the balance forwarded to the client, much cheaper than the loans and I have a large number of early season clients who use that option. My tax software offers that option now also and that is what I will probably use.

[MLINDER42]

Rals

Received e-mail from River City Bank my RAL provider they will still offer them but use other criteria to grant loans.Probably fewer people will qualify but that has been happening anyway. I don't see a big difference.

[dtlee]

As I read it, the RAL will still be available, but the IRS is beginning to realize that working out something to enable the RAL/EIC crowd to pay the preparer thru a direct IRS-to-preparer method and bypassing the RAL banks and associated fees would be in the best interest of all concerned. By waiting 10 days rather than getting the loan a big savings would occur and the preparer would get paid without having to resort to the RAL method.

None of my clients would be affected since they all have funds to pay me, but it would be a big benefit to those who are unable to pay their preparers without an RAL.

I agree that these alternatives are better. I had several clients receive their refund within a week last year and was completely baffled (as were they). However, there have been methods to pay a preparer without a huge interest fee in the past, it is just that few preparers pushed these and few customers wanted them.

I also question how I would get paid by the refund if the client had a huge debt to the government. Would I get paid first and then the government? I doubt it. Without the debt indicator, I would not know that I am not getting paid until it happens.

[Peachie]

I believe I do Don.

That the IRS has tried this before .. maybe ten, fifteen years ago or so. Eliminated the debt indicator. The banks continued to offer RALs, but only after doing real credit checks and then only for previous year RAL customers. Huge outcry from all concerned. Debt indicator was back the next year.

Anyone else remember that, or is this just a senior moment in reverse?

This tme though, I think IRS won't be so quick to change things. I think this gives us more equal footing with the big box companies. I don't do RALs because my clientele knows they are too expensive (I have made them more aware over the years). However, I wonder without RALs being so prevalent if more and more of them will prepare their own returns or if we will get some of that business? I am a referral based businesss so don't get the riff-raff that frequent the boxers, but there are people that won't prepare their returns no matter what.

Peachie

[Edsel]

Bank of America

Does anyone remember a few weeks ago the announcement from Bank of America they were getting OUT of the RAL business?

Why would they get out of business where they could earn 450%? Or maybe a better question, "What did they know?"

[MAJ]

Happy Days..... Ding Dong The RAL is Dead.. Ok not yet but maybe soon!

As I read it, the RAL will still be available, but the IRS is beginning to realize that working out something to enable the RAL/EIC crowd to pay the preparer thru a direct IRS-to-preparer method and bypassing the RAL banks and associated fees would be in the best interest of all concerned. By waiting 10 days rather than getting the loan a big savings would occur and the preparer would get paid without having to resort to the RAL method.

None of my clients would be affected since they all have funds to pay me, but it would be a big benefit to those who are unable to pay their preparers without an RAL.

I hate the RAL stuff.. I offer it every other year or so.. Usually never need it but don't want to deny new clients tools that they may need. Hate the entire concept of feeding off the people that need the money the most.

If a client doesn't have the money and I have been preparing them for a few years I tell them to give me a check and I won't deposit until the direct deposit is due. When the IRS allowed multiple deposits that was their perfect time time to allow taxpayers to pay preparers via their refund. A simple new authorizatino form would suffice. End of story. TP does not need to see or know my account information - Just the $$ value being deposited. I hated that we couldn't use it.
I had one client do a RAL this year. Begged him not to as I knew his credit was crap-o-la. He paid the fees, I got paid and in the end he was issued a check anyway. I mean - There was no reason - He had no back debts - Once the ACK came in the bank KNEW they were getting his money - So why deny him at that point? Their money was guaranteed! Now he had to come to me to get it, pay a fee to cash because he doesn't even have a checking account. He's my worst case client - Horrible Divorce - don't get me wrong - he's a mess too! The clue was his email address. Headbanger47@aol.com or something like that!! I mean he's like 42 years old. He meets all the sterotypical criteria of those people we'd look at and go -- Seriously!

Anyway -- Good news.. yes.. they'll still offer the RAL {RipOff and Lame} methods.

PS - If you use the RAL gimmicks alot for extra $$ - No harm intended -- JMHO

Enjoy the day - Leaving work now!!

[erchess]

Yes

Don I remember that too. Also I think fees went up.

Taxcpa yes I agree Rals will be with us for some taxpayers at some cost until the IRS offers Direct Deposit within 24 hours with an option to send some from refund to preparer. That would be in the best interests of nearly everyone. The big banks would lose revenue but would still have other ways to loan money. I'm sure most tax professionals and firms including JH and HRB would adapt.

[taxxcpa]

Making RALs unnecessary

As I read it, the RAL will still be available, but the IRS is beginning to realize that working out something to enable the RAL/EIC crowd to pay the preparer thru a direct IRS-to-preparer method and bypassing the RAL banks and associated fees would be in the best interest of all concerned. By waiting 10 days rather than getting the loan a big savings would occur and the preparer would get paid without having to resort to the RAL method.

None of my clients would be affected since they all have funds to pay me, but it would be a big benefit to those who are unable to pay their preparers without an RAL.

[DonPriebe]

I seem to remember ...

That the IRS has tried this before .. maybe ten, fifteen years ago or so. Eliminated the debt indicator. The banks continued to offer RALs, but only after doing real credit checks and then only for previous year RAL customers. Huge outcry from all concerned. Debt indicator was back the next year.

Anyone else remember that, or is this just a senior moment in reverse?

Update - The IRS eliminated the debt indicator in 1994 to cut down on RAL fraud. In 1998 congress set a goal of 80% participation in the e-file program. The IRS reinstated the debt indicator in 1999 as an incentive for the e-filing industry.

Ref: Corporate Welfare for the RAL Industry: The Debt Indicator. Congressional Record Oct 20 2005.

[ChEAr$]

Upon a full reading of this announcement, it does not appear to me that the IRS is going to outlaw RAL and RAC requests. Just remove information from the acknowledgement that pertains to the TP's offset liability, correct?

that is correct.

For more info as to effects, see http://www.reuters.com/article/idCNS...0100805?rpc=44

HRb stock down 3%; JH down 23%. right twenty three percent.

[Jesse]

I look forward to this:

In a related effort, the IRS plans to explore the possibility of providing a new tool for the 2012 tax filing season to give taxpayers a mechanism to use an appropriate portion of their tax refund to pay for the services of a professional tax return preparer. The IRS plans to engage with taxpayers, consumer advocates and the tax return preparer community to consider whether providing this option would be a cost-effective way for consumers to pay for tax return preparation services

[Edsel]

Technically Correct

Burke, I believe you would be correct.

Very similar to allowing automobiles to run on our highways, but making gasoline and other fuels unavailable.