Chris Etheridge

Medill News Service

Sunday, January
28, 2007

 

It's now harder to use a tax refund to get instant cash
this year.

 

People who file through the Internal Revenue Service's
Free File Web site will no longer receive offers for an advance on their refund
or other services that require a fee.

 

Through an agreement with the IRS, all 19 companies in
the Free File Alliance that write the tax software linked to the IRS site have
removed those extra options from their software.

 

"Clients who have benefited from these services in
the past now will be required to go outside the alliance," H&R Block
representative Dan Smith said in an e-mail.

 

The IRS is encouraging tax filers to sign up for a direct
deposit of the refund, rather than secure a refund anticipation loan.

 

Through direct deposit, taxpayers get their refund within
10 days, rather than wait three weeks for a refund check in the mail, said Sue
Hales, an IRS representative in Chicago.

 

Economic research groups that focus on poverty and
low-income households are applauding the move to pull extra offers down from
the Web sites. The groups claim these types of loans and options negatively
impact the poor and minorities more than other groups, leaving them with
high-interest debt that they struggle to pay back.

 

"Tax preparers should just prepare taxes," said
Tom Feltner, of the Woodstock Institute. "It is not the role of the IRS to
support or promote loan services, especially from companies that prepare
taxes."

 

Kevin Stevens, director of the school of accountancy at DePaul
University in Chicago,
said much of the concern over refund anticipation loans is about interest
rates, which can climb as high as 500 percent.

 

"People don't understand the power of compound
interest," he said. "If you're a college student and you get a $1,000
refund, maybe you get the loan. Then maybe you owe the landlord and some other
bills, and then the money to pay back the refund loan is gone."

 

Smith said the reason H&R Block decided to remove the
option of refund anticipation loans from its Web site was because so few people
use the service. He said the company told the IRS it was removing the loan
offers from the site two months earlier than the agreement was made with the
Free File Alliance.

 

About 19,000 of the 3.5 million people who used the Free
File service in 2006 chose to take out a refund loan through one of the
companies in the alliance, according statistics from the group.