Not so fast on rebate checks

Refund anticipation loans, preparer bills result in delays

Your Money

May 20, 2008|By Harriet Johnson Brackey

There's a glitch in the government's plans to pump $150 billion into the economy by sending taxpayers a rebate: The rebates aren't arriving.

Potentially, millions of taxpayers who were expecting to have their money by today will be waiting for their checks until June or July.

In addition, an Internal Revenue Service spokesperson in Florida confirmed last week that some economic stimulus payments have gone to the wrong bank accounts.

The stimulus snafu may touch the millions of taxpayers who take out refund anticipation loans or who allow tax preparation firms to deduct their fees from the taxpayer's refund.

Many who made either choice are now learning that they won't get their rebates by direct deposit - the fastest way to get the money. Instead, they will have to wait for a paper check by mail. That could delay the arrival until as late as July 11.

The rebate payments were supposed to have begun arriving on May 2. Direct deposits were supposed to be completed by May 16.

The IRS said this schedule would apply to any returns that were processed by April 15, the federal income tax filing deadline.

In the months leading up to April 15, the IRS did put out information about who could and could not use direct deposit. People who split their refunds between more than one account, for example, have to wait for paper rebate checks.

But the IRS did not provide details on the refund anticipation loan issue until May 7, long after tax returns were due. Before May 7, the discussion of the issue apparently was relegated to a list of frequently asked questions about the stimulus program on the IRS' Web site, www.irs.gov.

The glitch is due to a technical problem, according to major tax preparation firms.

The firms usually set up a temporary bank account for those who take out refund anticipation loans or checks, which are used to pay their tax preparer. Once the refund is paid, the account is closed. The IRS could not send a rebate there.

Major tax preparers say the government is to blame for taxpayers' confusion.

"The IRS decided how people were going to get paid," said Nancy Mays, an H&R Block spokesperson. "This is not in any way an H&R Block issue."

At TurboTax.com, the software company noted that the economic stimulus program became law Feb. 13 and that the IRS only announced its rebate schedule in mid-March.

"My expectation is for folks who filed early, in late January or the mid-February time frame, they would not have known. We would not have known," said Julie Miller, a spokeswoman for Intuit Inc., which produces TurboTax. Anyone who used TurboTax's Refund Transfer service will have to wait for a paper check.

But consumer advocates who have long opposed the use of refund anticipation loans, fault the tax preparation industry for the mess. Their issue is that refund anticipation loans are expensive and unnecessary for many taxpayers.

"The tax preparers knew," said Chi Chi Wu, an attorney at the National Consumer Law Center in Boston.

She said she doubts that tax preparation companies told their customers. The center and the Consumer Federation of America estimate that tax preparers reaped more than $900 million in loan fees in 2006.

More than 20 million people took out refund anticipation loans or checks in 2006, according to IRS data. Wu said she's heard the figures will be much higher for this tax season.

"Small consumers get hurt, big tax preparation firms get rich," said Ed Mierzwinski, consumer program director with the U.S. Public Interest Research Group.

In addition to the delayed payments, some stimulus payments have gone astray.

Gloria Sutton, IRS spokeswoman in Jacksonville, Fla., said about 1,500 payments had been sent to someone other than the intended taxpayer. But she pointed out this is a small number, considering that 30 million economic stimulus payments have been sent out already and of those, 27 million were direct deposits.

Harriet Johnson Brackey writes for the South Florida Sun-Sentinel.

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