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Instant Refund Tax Loans
Creators Syndicate
FIGHT BACK! BY DAVID HOROWITZ
"Instant Refund" Tax Loans
Last year, 13.5 million Americans filed electronic tax returns,
of which 32,000 were found to be fraudulent. That's not a very high
percentage, but the Internal Revenue Service believed some changes
were needed to reduce fraud in electronic filing.
The most significant change involves those "instant refund"
loans offered by banks and other lenders. Until this year, the IRS
gave electronic returns a quick once- over and, if the taxpayer didn't
owe the government any money, it issued an immediate notice that a
refund was due. The person filing the return could then use that notice
to qualify for a quick loan for the amount of the refund, less about a
$30 fee for the lender.
What happened was that some people filed false electronic
returns, received the refund notice, applied for a loan and then
disappeared with the money. So this year, the IRS will no longer issue
those 24-hour refund notices. Banks will still make tax refund loans,
but qualifying for a loan will be tougher, maximum loan limits will be
lower and fees will be higher (as much as double last year's fees).
Even if you do qualify for an "instant refund" loan, think
carefully before you apply for one. The IRS says that if you file
electronically, you'll get your refund directly from the government
within 21 days (compared to 40 days for a paper return). If you take
out a quick loan, it will cost you at least $30, which is an outrageous
rate of interest if you're borrowing only a few hundred dollars for
two or three weeks. That's on top of the $35 fee charged by the tax
preparer to file your return electronically. In most cases, you're
better off waiting for the IRS to either mail you a check or deposit
your refund directly in your bank account.
This is not to say the IRS wants to discourage electronic
filing -- quite the opposite. Electronic returns are quicker to
process than paper returns, there are fewer errors, and tax refunds
are delivered more promptly. The government figures that 15.5 million
taxpayers will file electronically this year. To make it even easier,
many tax preparers will file your return electronically for no more
than their usual preparation fee.
The IRS is also expanding its experimental TeleFile system,
which allows certain taxpayers to file returns by telephone. All the
information can be entered from a touch-tone phone in about five
minutes. TeleFile is now available in all or part of 10 states. It's
only for those people who are single, filed a 1040EZ return last year,
are living at the same address this year and do not qualify for an
earned income tax credit. Those taxpayers will receive a special
TeleFile information packet from the IRS, so if you don't get one,
this option is probably not available yet in your area.
Other alternatives to filing a paper return include Form
1040PC, which allows taxpayers to prepare their returns on their home
computers. The 1040PC includes only those forms and statements which
actually apply to each person's return, that reduces errors and IRS
processing time. The IRS also expects as many as 30,000 taxpayers to
file returns directly from their personal computers through either
CompuServe or America Online.
If you have any questions or comments, please write to David
Horowitz in the Consumer Forum+ (go FIGHTBACK). COPYRIGHT 1995
CREATORS SYNDICATE, INC.
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