The IRS Moves to Decrease the Use of RALS

In the statement, IRS Commissioner Doug Shulman stated that “as we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days. We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days." Currently, 70 percent of all tax returns are e-filed. However 98% of Volunteer Income Tax Assistance (VITA) clients e-file.

NCTC representatives attended public meetings earlier this year to provide the IRS with comments about the need to regulate paid preparers and the RAL industry. The continued presence of the RAL industry in low- and moderate-income communities prevents the Earned Income Tax Credit and Child Tax Credit from reaching their full potential. NCTC gave their support for increased oversight by the IRS of the RAL industry and expanded access to safe financial products that will eliminate the need for tax-time loan products. NCTC specifically recommended:

• Swift implementation of the recommended requirements for tax return preparers released by the IRS in January, 2010
• Restricting RAL marketing and lending at tax time by increasing transparency and requiring the full disclosure of fees, interest rates, and rules;
• Restricting access to the debt indicator

NCTC applauds the IRS' decision to eliminate the use of the debt indicator by RAL Lenders. Lenders use the debt indicator to determine if a tax payer owes the government and whether or not to approve an individual for a RAL.

Many consumer advocates and Members of Congress that have worked to eliminate the need for RALs were quick to applaud the decision by the IRS. Senator Jeff Bingaman (D-NM),a constant champion for taxpayer rights stated:

Too many hard working New Mexicans have lost sizable portions of their tax refunds to RALs.  I applaud Commissioner Shulman for this critical step towards dramatically reducing RALs, and I echo his call encouraging taxpayers to use electronic filing so that they can receive their refunds quickly. I will continue my work with the National Taxpayer Advocate to support volunteer income tax assistance programs, like Tax Help New Mexico, a nationally acclaimed program that helps low-income people across our state prepare and file their tax returns.

For more information, see the IRS press release.