Although April 15th is fast approaching, there are plenty of people still waiting to file their taxes. Shopping around for a quality service is smart, and consumers have a range of choices, from VITA volunteers (Volunteer Income Tax Assistance) to certified public accountants.
Be careful, however, of larger chain services often found in or near department stores. You may be overcharged despite offers (baits) like a Walmart gift card or getting your refund placed on an American Express prepaid card, so do your homework. Until recently, every such chain offered what are called “anticipatory loans,” which charged extremely high fees and APRs (interest) to advance you part of your refund before the Internal Revenue Service sends the whole thing to the chain. Most companies have dropped these loans because the IRS is no longer telling them whether or not taxpayers owe back taxes. The IRS has done this in an effort to stop this kind of predatory lending.
What one of these chains, Jackson Hewitt, did in response to the IRS shift was to start offering an advance to consumers against their refunds, calling the advance a no-interest, no-APR loan. Things that sound too good to be true generally are – as a young Oglala Lakota mother recently found out.
Gloria (her name has been changed to protect her personal financial information) has used Jackson Hewitt for the past few years to do her taxes and never thought about their fees – just about keeping her refund accurate and getting it as soon as possible. The earned income credit she claimed when she filed her return last year added $3,200 to her refund, which she picked up last month from the Jackson Hewitt office in a Walmart in Rapid City.
Gloria has a lot of dreams. Spread across the table is her application to Oglala Lakota College. Newly relocated to Pine Ridge, she wants to start a home for foster kids on the reservation.
Looking forward to learning her Lakota language, starting a kitchen garden and hunting porcupine for quill work after a boring winter, she did not balk when the Jackson Hewitt charged her more than $400, plus another $100 in fees for preparing and filing a simple federal return. Although she refused the “refund loan” they offered her, she was unaware that she was overcharged for the preparation. Her simple 1040 return should have taken about 20 minutes to prepare, according to Lonnie Brewer of the Four Winds Community Fund.
Gloria thought she was sitting pretty after collecting her refund in February, but in early March a household emergency took most of her refund check. That $500 preparation fee would have come in very handy now.
When questioned about whether or not the terms of the refund loan Gloria had been offered were predatory in any way, Angela Sanders, Jackson Hewitt Senior Vice-President stated that the company had not charged interest or an APR on these loans for the past two years. When asked why they were called loans if there was no interest, Sanders offered no direct response, stammering on the other end of the phone. When asked how her company can make a profit by advancing money for free, Sanders offered no direct response. Sanders did state, however, that her company always has the customer’s back. The company website says Jackson Hewitt does not claim tax expertise as a precursor to franchise ownership, although tax preparers themselves can take classes through Jackson Hewitt.
The Norwalk, Connecticut office of Jackson Hewitt charged with fielding questions from regional Jackson Hewitt offices, stated that the money advance was still technically a loan, even if there was no interest, since the money advanced had to be repaid. In the world of finance, accounting and business, loans are considered interest-bearing. Websites like Investopedia, Kiplinger and basic dictionaries like Merriam Webster bear this out. They also stated that this year, such “advances” or “loans” were only available in January and February, and that they “had no idea what was going to be offered” next year.
The first question that comes to mind is how can a for-profit company lend money out to customers for free?
Adam Rust has an answer. As Research Director for Reinvestment Partners of Durham, North Carolina, which advocates for low-wealth communities and works against predatory financial practices, Rust has interviewed chain tax preparers who state that the costs are passed to consumers in higher preparation fees.
Brewer estimates that last year Four Winds prepared 528 tax returns through the VITA program, which offers “free tax help to people who generally make $54,000 or less, persons with disabilities, and limited English speaking taxpayers who need assistance in preparing their own tax returns. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals,” according to the Internal Revenue Service. VITA preparers who work for him are volunteers and not available on a drop-in basis. He stated that this is problematic for tribal members.
Lakota Funds staff in Kyle, South Dakota say they offer volunteer tax preparation assistance as well but that many tribal members prefer to drop in rather than make the mandatory appointment.
Complaints against all franchise tax services abound on the Internet, and VITA tax preparers have received their share of criticism as well.
Fortunately, taxpayers still have time to shop around for help filing returns.