Debt indicators — IRS information about back taxes and other debts taxpayers owe — are going away. The IRS has sent debt indicators to tax preparers to let them know if their customer’s refund might be held to cover back taxes and other debt. Banks trying to determine whether to give someone a short-term loan depending on their tax refund will use debt indicators to make their decision.
Debt indicators gone beginning with 2011 tax season
The IRS reasoning for stopping debt indicators within the 2011 tax season as announced Aug. 5 is that they aren’t needed by anyone. Taxpayers can get their taxes in just a couple of days with electronic filing and direct deposit. Because of the fast return, refund anticipation loans aren’t needed. Stopping debt indicators is bad for many different companies who rely on that money they get from the unbanked and underbanked.
Delinquents pointed out with debt indicators
You will find many banks thriving off of refund anticipation loans, and they need debt indicators to tell them what interest rate to give, how much to loan, and what kind of loan to give out. Journal of Accountancy reports that until now, when a tax preparer e-filed a client’s tax return, the IRS included a debt indicator in the acknowledgment file if the taxpayer would have any portion of the tax refund offset for delinquent taxes or other debts, including unpaid child support or delinquent federally funded student loans.
Refund anticipation loans not like by the IRS
For giving somebody cash just a couple of days before a tax refund arrives with high interest rates and fees, short term refund anticipation loans are criticized by many. The National Consumer Law Center reports that 8.4 million people paid fees on refund anticipation loans, totaling $ 738 million in just 2008. Those who are low-income are generally the people getting hurt by anticipation loans according to IRS Commissioner Doug Shulman who talked to the Associated Press. The longest it would take to get a tax refund would be 10 days when filing electronically and getting direct deposits. He explained:
“I think it’s unfortunate that there’s a lot of hardworking Americans that are in a financial situation where they have to pay a substantial fee to access their refunds a week or two before they can get it from the IRS.”
Lenders that use refund application loans seem upset
Debt indicators, when asking those who lend refund anticipation loans, help any cash strapped individuals get money faster. Alan Bennett, president of H and R Block, told MarketWatch that taking away debt indicators only hurts those with low refund anticipation approval rates and will even give higher costs to other taxpayers. He said these consumers are often unbanked or under-banked and will be forced to seek more expensive and unregulated credit. Shares will go down 3 percent in 2011 making it go to 5 cents a share for H and R Block because of this.
Further reading
Journal of Accountancy
journalofaccountancy.com/Web/20103174.htm
Associated Press
google.com/hostednews/ap/article/ALeqM5gZhidWFh-omq3dh3M486iDXA4JbAD9HDHDKG0
MarketWatch
marketwatch.com/story/hr-block-responds-to-irs-elimination-of-the-debt-indicator-2010-08-05?reflink=MW_news_stmp
