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Tax Time Taxing Enough Without Deception

Tax Time Taxing Enough Without Deception

Tax time is taxing enough each year, so why pay more than you have to? First Nations Development Institute conducted research in early 2012 to see if Native American tax filers were being overcharged for tax-preparation services.

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With support from the Annie E. Casey Foundation and the W.K. Kellogg Foundation, First Nations carried out a second year of secret shopping during the 2012 tax season to assess the quality of tax-preparation services and to discover if tax-preparation companies were steering people toward expensive products, such as refund anticipation loans or refund anticipation checks.

The most troublesome finding from this year’s research was that tax preparers manipulate clients into signing up for costly products like the Refund Anticipation Check (RAC) or Refund Anticipation Loan (RAL). Three of the 10 participants in our 2012 study were automatically signed up for the RAC option to receive their refunds, through questionable methods used by the preparers. Furthermore, seven of the 10 were offered a RAL loan and all 10 shoppers had some type of exposure to this expensive option through aggressive marketing. We found that some companies used a strategy of only accepting cash upfront for preparation fees, resulting in automatic enrollment of the client in a loan product if he or she did not have cash on hand. Finally, like the RAC disclosure forms, some preparers had our shoppers sign RAL consent forms without any consent.

One of our secret shopper’s experiences exemplified many of the concerning findings from our research. When she applied for a loan against her tax refund, a Social Security card and birth certificate were held as collateral for the loan until she returned to file her taxes with the company. When she later had her taxes prepared by the company, she attempted to pay her tax-preparation fees up front, which would have saved her almost $50. The company informed her that these fees were automatically rolled into her loan product and could not be removed to pay separately. The most significant issue, however, was that our participant was told that her refund came in almost two weeks after the IRS website said it was available. During this time period, our shopper, who had recently become unemployed, decided to take out another loan and the loan company enabled her to apply for another costly loan. This client later filed a complaint against the tax-preparation firm and received a payment from the firm for the fees associated with the third loan.

“We acknowledge that tax preparation firms can provide a valuable service,” said Sarah Dewees, Senior Director of First Nations’ Research, Policy and Asset-Building Programs in New Mexico, “but we expect them to act ethically and in the best interest of their customers. Our research suggests this is not always the case, and instead tax preparers are taking advantage of some Native American tax filers.” To read the report