IRS Eliminates Debt Indicator

The Internal Revenue Service announced that starting with next year’s tax filing season it will no longer provide tax preparers and associated financial institutions with the “debt indicator,” which is used to facilitate refund anticipation loans (RALs).

“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,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

So far this year, more than 95 million tax returns have been e-filed, representing more than 70 percent of tax returns.

“Refund Anticipation Loans are often targeted at lower-income taxpayers,” Shulman said. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

The IRS has been reviewing refund settlement products, such as RALs and Refund Anticipation Checks (RACs), as part of the Return Preparer Review released in January. Specifically, the IRS announced that it would study refund settlement products.

RALs are loans secured by a taxpayer’s anticipated tax refund. Currently, tax preparers who electronically submit a client’s tax return receive in the acknowledgment file an indication of whether an individual taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent federally funded student loans. This acknowledgment is known as the debt indicator, and is used as an underwriting tool for RALs.

The IRS announcement would remove the debt indicator starting with the upcoming 2011 tax filing season. The IRS noted that taxpayers will continue to have access to information about their tax refunds and any offsets through the “Where’s My Refund?” service on

RACs are temporary bank accounts established on behalf of a taxpayer into which a direct deposit refund can be received and out of which a bank typically issues a payment to the taxpayer.

With both RALs and RACs, tax preparation and product fees are subtracted directly from the refund, and the taxpayer does not make any “out-of-pocket” payments. They are frequently marketed to taxpayers who do not have cash to pay for professional tax preparation services.

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.

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Back Home and Back to Work

After a week on the road it is good to be back home for a while. Our “What’s Around The Corner Workshop” series took us to Norman, OK and Irving, TX in the beginning of the week and ended in Falls Church, VA on Saturday. The challenge of delayed flights, changing time zones and long drives diminishes a little of the enjoyment of the trip, even for someone who considers himself a road warrior, but it was still a lot of fun.

One of the most satisfying things about the trip was getting to meet different preparers at their different stages of development and hearing mostly positive things about the upcoming preparer registration. Most preparers think registration is a good thing, as long as the IRS doesn’t lose focus on the underground preparer and increases enforcement and penalties on those who don’t comply with the new rules.

Our workshop agenda included: a State of the Industry overview, a hands-on marketing session with Robert Gatewood of Gatewood Marketing, Preparing For and Surviving an IRS E-File Audit, Paperless Tax Office Overview, Update on the Banking Industry and Tax Industry Bank Products and finally, a short session on Refunds-To-Go, our innovative new concept for owning a tax business (more in a future post).

Plans are to continue the workshop series in the fall in the D.C. area with updates on the industry happenings combined with practice development topics. Stay Tuned!

IRS Releases PTIN User Fee Info

On July 21, 2010, the IRS released REG-139343-08 entitled, User Fees Relating to Enrollment and Preparer Tax Identification Number. In a nutshell, the proposal is to charge a new $50 user fee to apply for or renew a PTIN. The fee is based on an annual  renewal period and will be nonrefundable. A third party vendor will administer the PTIN application and renewal process and will also charge a reasonable fee that will be independent of the governmental user fee. The IRS will hold a public hearing on August 24, 2010 at 10:00 a.m. in the auditorium at the IRS Building 1111 Constitution Ave  NW Washington, DC. to allow for comment and feedback on the new rules.

Here is the direct link to the REG:$File/ptin.rules.7.21.pdf

What’s Around The Corner Workshop

We held our second “What’s Around The Corner” Workshop last Saturday in Linthicum, MD outside of BWI airport. Several attendees came out to hear information on the new IRS Preparer Registration. I am still a little surprised when I hear people respond that they knew about little or none of the information we present, such as proposed registration fees, continuing education requirements, etc. But, I guess that we will see a full media press in the fall when the registration period begins. Our next DC-area seminar will be Saturday, July 31 in Falls Church, VA. If you want to hear about the changes and get breakfast and lunch, email me or respond in the comments.

Retail Tax Prep Is On Life Support