The federal government is trying to do the right thing for taxpayers who live paycheck-to-paycheck and rely on their tax refunds to help with the basics of everyday living.
Unfortunately, initiatives the government recently unveiled will only hurt those people by limiting taxpayers' access to their own information, reducing their choices and increasing their costs.
The IRS recently announced that it will restrict information it provides about debts taxpayers owe to the government. This decision prevents taxpayers from accessing their own debt information at the moments they need it most - when they are filing their tax returns or applying for refund anticipation loans, which use a taxpayer's anticipated federal tax refund as collateral. As a result, the IRS decision may actually increase the cost of the loans because lenders - who now will not know of any debts the borrowers owe to the government - likely will increase prices to offset this new level of risk.
These loans serve as a lifeline for 8 million people annually. The real-world implications of this decision are serious for taxpayers who need access to funds faster than the IRS can currently provide in order to prevent eviction, to take a sick child to the doctor or to repair their only means of transportation to a job.
The IRS has detailed information about outstanding taxpayer debt, but now says it will only provide this information to taxpayers at some undefined point after their tax returns have been filed. This is simply unacceptable.
Taxpayers have the right to know their unpaid debts in real-time and year-round, and certainly at the time of tax filing, so they can know with certainty whether the government will keep any of the expected refund.
It would be unconscionable for a private sector company to withhold credit information from consumers when they need it. The IRS could easily provide this information as part of the e-file process or via a secure, password-protected real-time link available on the IRS website year-round.
The IRS claimsthat access to government debt information is no longer needed because taxpayers can receive their refunds via e-file and direct deposit. But on average it still takes almost two weeks for a taxpayer to receive a refund that is direct deposited on an e- filed return - and that is if the taxpayer has a bank account.
"As long as there is a delay between when taxpayers file their tax returns and when they receive their refunds, consumers will demand the right to choose products that provide them faster access to funds."
More than 60 million Americans - about 25 percent of U.S. households - do not have bank accounts or rely on alternatives. Taxpayers without bank accounts who file paper tax returns may wait up to eight weeks for a paper check refund from the IRS.
According to news reports, the Treasury Department is considering an initiative that would allow the IRS to select a bank for unbanked taxpayersand deposit their tax refunds directly into new accounts at that bank. Leaving aside the questions of how this would work, when it could be implemented and whether taxpayers even want that option, it still won't help them get access to funds as fast as they need them.
Treasury and the IRS have laudable goals. But their suggested solutions - ones that disregard the insights of companies like ours that work directly with these consumers - ignore the grim economic reality millions of Americans face. As long as there is a delay between when taxpayers file their tax returns and when they receive their refunds, consumers will demand the right to choose products that provide them faster access to funds. For many, a two-week delay for direct deposit is okay. But for many others, it's a major hardship.
In the current economic environment, where other forms of credit for low- and middle-income individuals have been curtailed or eliminated, now is not the time to restrict taxpayers' access to information and product choice. Attempts to minimize the use of refund anticipation loans will not eliminate the need or demand for these products. The unintended consequence likely will be that taxpayers will seek unregulated credit alternatives - which typically cost even more.
Treasury and the IRS need to remember that, in these difficult economic times, consumers need access to their own financial information so they can have the freedom to make informed financial choices.
These initiatives are the wrong decisions at the wrong time.
About the authors of this post: Alan Bennett, President and CEO, H&R Block . Harry Buckley, President and CEO, Jackson Hewitt Tax Service Inc . John Hewitt, President and CEO, Liberty Tax Service.
H&R Block, Jackson Hewitt Tax Service Inc., and Liberty Tax Service are the three largest tax preparation firms in the United States. Combined, the three companies have more than 21,000 franchised and company-owned offices across the country. In 2010, they prepared more than 27.5 million tax returns.