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Avoiding predatory lending at tax time

PINE RIDGE, S.D. - Since going to work for the Pine Ridge Area Chamber of Commerce in 2001, executive director Ivan Sorbel has seen tax season ring in a number of unsavory practices - along with some pretty good ones, too, such as the paid tax preparer on Pine Ridge who charges reasonable rates without relying on high-interest loans against tax returns.

One thing he hasn;t seen, though, is rejection of tax preparation clients because trust income is too much hassle to calculate.

Reports have surfaced in different parts of Indian country, including Pine Ridge, to the effect that Native people have been turned away by commercial tax preparers because they reported trust income, or faced serious inconvenience because they had purchased gas at tax-free stations on tribally owned trust land.

Sorbel, whose chamber of commerce prepares returns as a Volunteer Income Tax Assistance site of the Internal Revenue Service, said he hasn't heard of those problems at Pine Ridge.

At the Osage Tax Commission in Oklahoma, Mary Mashunkashey gave a similar account. ''We haven't heard of that around here.'' The commission doesn't prepare tax returns, she added. ''But we would have heard.''

At press time, the jury remained out on whether tax preparation problems for people with trust income, or making purchases on trust land, are isolated incidents or facets of a larger problem.

By contrast, a definite trend on and around Pine Ridge and other reservations is the paid tax preparer that charges $50 or so for preparing a single tax form - for many families, that can translate to $150 for a basic return, an Earned Income Tax Credit form and a child tax credit form - and then extends a high-interest loan that is repaid by the tax return, which goes straight to the preparer. The transaction can and does result in, for instance, a $200 chunk gone from a $500 tax return, Sorbel said.

He isn't certain the practice qualifies as predatory lending, but he won't say the same for a variation that has come around in recent years. Paid tax preparers get started between Thanksgiving and Christmas, before the calendar is even out on the tax year.

They estimate a return, mock one up and make a cash loan in advance of the holidays; as a condition of the loan, they get a signature committing the borrower to return to them for the filing of an official return in the new year. The presumed return will pay off the ''Christmas'' loan and, probably, preparation fees. ''That's predatory,'' Sorbel said.

His message is that Indian people don't have to pay at all to file their taxes. ''I can't prove this, but I believe people see earned credit [from the EITC] as free money.'' They spend it unwisely through tax preparation shops: '''But it's not mine anyway.'''

It is, though, Sorbel insists. Taxpayers have earned it; that's why it's called the Earned Income Tax Credit.

In any case, many taxpayers in Indian country can file their taxes for nothing with just a bit of effort. VITA sites prepare tax forms for free. They can be found around the nation by dialing (800) 829-1040.

The Pine Ridge Area Chamber of Commerce, a VITA site, can file electronically to hasten returns. But Sorbel said it assists only about 40 people a year. VITA sites can only begin preparing taxes once the government gives the green light. That was Jan. 15 this year, and the pre-Christmas preparers had beaten them to the punch.

The well-known software TurboTax is also effective, uncomplicated and inexpensive, Sorbel said.

And there's always the old standby: manual labor. ''Most of what we see are basic filings,'' Sorbel said. ''They're really not that hard to do if you've got any math sense. The forms have directions for every line.''