Instant Tax Refunds Are Just High-Interest Loans

Consumers who have a big tax refund coming often want to get their hands on it as soon as possible. In New Jersey, the Office of the Attorney General and State Division of Consumer Affairs last week inspected 574 tax preparation offices statewide in search of false and misleading advertising of so-called "instant," "same day" and "24 hour" tax refunds.

State officials reminded taxpayers that there is no such thing as an "instant" tax refund, as the Internal Revenue Service (IRS) cannot issue refunds that quickly. So-called "instant" refunds offered by some tax preparers are usually Refund Anticipation Loans (RALs), which often come with high fees and interest rates that cut deeply into the amount a taxpayer would receive from the IRS.

Empty promises

"The promise of fast cash and an instant refund can be very attractive, especially in times of economic hardship," said New Jersey Attorney General Paula Dow. "But tax preparers who offer so-called same-day refunds are selling something that does not exist -- typically at a high cost to the buyer."

The Division of Consumer Affairs investigators say they found five New Jersey businesses falsely advertising RALs in storefront signs, posters or flyers as "instant" or "same day" refunds. Each inaccurate or misleading sign is considered a separate violation of the state's Consumer Fraud Act's Advertising Regulations. The state is seeking a civil fine of $1,500 for each violation, for a total of $7,500 in fines; and reimbursements of $250 from each cited business for the state's investigative costs, for a total of $1,250 in reimbursements.

The businesses cited last week are: Demian and Co., LLC, in Cranford; MB Motor Sports, Inc., in Tinton Falls; City Tax in Jersey City; Girotel NJ, LLC in Union City; and Personal Touch Taxes, LLC in Newark.

Tax preparers who offer RALs are required to advertise them accurately. They are prohibited from requiring a client to enter into a refund anticipation loan and must be transparent about the costs involved. Tax preparers must also provide itemized statements of service charges, including charges for tax return preparation, electronic filing, and providing or facilitating the RAL.

Next best thing to instant

While the IRS doesn't hand out "instant refunds," its e-file system coupled with direct deposit, can put your refund into your account very quickly -- and it doesn't cost anything. Many taxpayers can even qualify for free tax-filing software.

The Free File Alliance, a coalition of industry-leading tax software companies partnered with the IRS, offers low-to-moderate income taxpayers free access to leading commercial tax preparation software. This year, every taxpayer with a 2010 Adjusted Gross Income of $58,000 or less may visit www.IRS.gov to prepare, complete and e-file his federal tax return at no cost.

"IRS Free File returns this year to proudly give 98 million Americans free access to the industry's best tax preparation software," said Tim Hugo, executive director of the Free File Alliance. "We are committed to making taxes simple, fast and free by offering step-by-step help that takes guesswork out of the process. More than 30 million people have already taken advantage of IRS Free File, and our goal this year is to serve each and every taxpayer making $58,000 or less."

To begin, taxpayers may visit the IRS Website and click on the "Free File" icon. Users will find a list of Free File Alliance member companies and may either choose the one that fits their needs or utilize the "help me find a company" tool. After selecting a company, taxpayers will be transferred to the company's Website to prepare, complete and electronically file their federal income tax returns. Three of the 19 participating software companies also offer services in Spanish.