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News and Views about Taxes

“But I Paid Extra For The One-Day Refund…”

with 2 comments

I have heard this lament three times in the past week, when a tax client called asking why they hadn’t yet received their Refund Anticipation Loan (RAL). In all three cases, their loan requests were rejected by the bank.

Refund Anticipation Loans are just that – loans. Not “instant refunds”, not “one-day refunds”, not “rapid refunds”, not anything of the sort. The taxpayer is borrowing money, with his anticipated refund as security. The “extra” amount that the taxpayer “pays” is the finance charge on the loan.

I explain that. I explain that the client can be rejected by the bank at the bank’s discretion, and if that happens (1) they will not get their money for 8-15 days and (2) they will not be charged a finance charge. I explain that they do not have to get a loan, that the IRS can get them their money in the same 8-15 days if they have a bank account. And yet when all is said and done, the client will still go for the 1-2 day option, believing that the extra fee upfront is just to expedite getting them their refund.

And that’s why I have to restrain myself when a client calls and I hear “But I paid extra for the one-day refund”. No, you didn’t. You tried to get a loan, and you were denied. I can’t know in advance that you’re going to be approved when I put your return through.

The ideal solution would be to get out of the RAL business altogether, but that won’t happen unless Congress or the IRS steps in – and I don’t see that happening.

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Written by nctaxpro

February 3, 2010 at 12:24 pm

2 Responses

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