NYC Cracks Down on Tax Preparer Fraud and RALs

New York City officials have conducted a citywide crackdown on fraudulent tax preparers, handing out violations to one in three tax preparers visited by inspectors.

Mayor Michael Bloomberg and Consumer Affairs Commissioner Jonathan Mintz said last week that the Department of Consumer Affairs conducted more than 1,200 inspections citywide and found that one in three income tax preparers violated consumer protection laws. The department issued over 1,600 violations to 439 income tax preparers for misrepresenting tax preparers’ qualifications, violating consumer rights and illegally advertising refund anticipation loans as “instant” or “rapid” refunds.

Bloomberg also encouraged New Yorkers to take advantage of the many options available for filing their taxes and claiming tax refunds for free or low cost. Qualifying New Yorkers can file their taxes online for free, visit a free tax assistance site, or get their taxes done at participating H&R Block locations for just $29 using a new city-sponsored coupon.

New Yorkers who file their taxes at select Volunteer Income Tax Assistance sites may also be eligible to sign up for one of 250 SaveUSA accounts that remain available. Created in New York City, participants of SaveUSA could receive a 50 percent match, up to $500, if they deposit at least $200 of their tax refund into a SaveUSA account and maintain the initial deposit for one year. The mayor and commissioner were joined by City Council member Dan Garodnick and Ariva Deputy Director Diana Breen.

“New Yorkers deserve to get back every penny of their refund, which is why the Department of Consumer Affairs not only offers many ways for people to file for free or low cost, but conducts an annual inspection of hundreds of tax preparers,” Bloomberg said in a statement. “If you aren’t using one of the city’s filing options, we want to make sure all New Yorkers are protected at whichever tax preparer they choose.”

Consumer Affairs inspected income tax preparers charged with violations in 2009 and 2010, along with businesses located in neighborhoods with large populations of immigrants and high usage of refund anticipation loans. The industry demonstrated a compliance rate of only 65 percent, which is lower than the 71 percent compliance rate in 2010. Compliance in neighborhoods where there is a high concentration of filers with low incomes who are eligible for the Earned Income Tax Credit was 32 percent worse than in neighborhoods with lower numbers of EITC filers.

New Yorkers with children who earn up to $48,362 or those without children who earn $18,470 are eligible to claim the EITC. Total fines from the enforcement sweep could reach close to $2 million.

Consumer Affairs found that about half of the businesses offering refund anticipation loans were illegally advertising them.

Refund anticipation loans are high-interest loans often marketed as “instant,” “rapid,” or “24-hour” refunds, which consumers must pay back even if their refund is not as large as they had anticipated – a fact that is often not disclosed by income tax preparers, officials noted. Refund anticipation loans are not illegal in New York City, but income tax preparers must disclose that these products are loans with annualized interest rates as high as 500 percent, significantly decreasing an expected refund.

In New York City, tax preparers must also post their qualifications, fees and charges, and whether or not they will represent consumers at a government audit. Preparers must sign every tax return, and provide their customers with a copy of their tax return and a receipt for their services.

Mintz announced Wednesday that one of the main banks still funding refund anticipation loans, Republic Bank, asked for a list of tax preparers who had violated New York City laws,

“Last week I joined Mayor Bloomberg to announce that during our 2011 Tax Time Sweep the Department of Consumer Affairs issued violations to one in three tax preparers in New York City, principally for deceptively advertising refund anticipation loans,” said Mintz. “After our enforcement sweep announcement, Republic Bank contacted us to request a list of all of the tax preparers who had received RAL violations to ‘take corrective actions with the offending offices.’ Particularly given how dangerous and costly these sometimes-500 percent interest rate loans can be, I await the results of Republic Bank’s and other lenders who partner with RAL providers’ efforts to ensure that those tax preparers offering these loans comply with the law.”

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