NYC Cracks Down on Income Tax Preparer RALs
New York Citys Department of Consumer Affairs has investigated nearly 800 income tax preparers in a month-long investigation and issued 2,010 charges for violations, including illegally advertising refund anticipation loans as instant or rapid refunds.
Consumer Affairs Commissioner Jonathan Mintz noted that RAL costs can amount to as much as a 500 percent interest rate. The truth is that RALs are such a bad idea that tax preparers and lenders generally need to lie about them in order to sell them, he said at a press conference Tuesday. Lying about them in New York is illegal.
Mintzs investigators found that three out of 10 tax preparers in the city were misleading their customers about their rights, and in most cases telling them or deceptively advertising that a refund loan was just a rapid refund or a same-day refund. In the Bronx, over half the preparers that we inspected got it wrong and were issued violations, he said.
Total fines from the enforcement sweep could reach more than $1 million, he noted. The department issued violations to nearly 250 income tax preparers. However, the 2010 compliance rate of 69 percent was up from 65 percent in 2009, and 56 percent in 2008.
The department inspected income tax preparers charged with violations in 2009, as well as businesses located in neighborhoods with large populations of immigrants or high usage of refund anticipation loans. Forty percent of the same tax preparers who were fined last year were again caught misinforming their clients this year, or 57 of 141 tax preparers. How is it possible that a tax preparer would get it wrong again? said Mintz. He wants the City Council to grant his department hearing authority to hold tax preparers accountable.
In New York, tax preparers must post their qualifications, fees and charges, and whether or not they will represent clients at a government audit. Preparers must sign every tax return, and provide clients with a copy of their tax returns and a receipt for their services.
Before entering into a RAL, a tax preparer must disclose that a taxpayer is not required to take out a RAL, the gross amount of the refund a consumer is eligible to receive without taking out a RAL, and the fees to be paid for taking out such a loan. Tax preparers must also disclose the approximate loan amount the taxpayer will receive; the estimated annual percentage rate to be paid for the loan based on the amount of time the loan will be outstanding; and the approximate date by which a taxpayer who takes out a loan can expect to receive the loan amount, or the approximate date by which a taxpayer who does not take out a RAL can expect to receive a refund.
Mintz noted that the department also found other violations besides tax preparers who were misinforming clients about the nature of the RALs they were promoting. In one case, a preparer included his own bank account number in the direct deposit line on the clients tax return.
New York City is offering free online tax prep software for residents who earn less than $58,000 per tax return (see Big Apple Intros Free Online Tax Prep). The city also provides a way for some taxpayers to save their tax refund money in a special bank account and earn back half the money, up to $500 plus interest, if they keep it in the account for an entire year. For more information, visit www.nyc.gov/onlinefreetaxprep and www.nyc.gov/ofe.