Tax Preparers and Refund Application Loans are bilking the poor

Why is it that the most vulnerable are the least protected? Working in a poverty-ridden neighborhood where tax volunteers help low-income individuals and families file their taxes, this report makes me wonder how many of our patrons are getting fleeced.

As libraries are known places to find tax forms, and patrons already ask us questions that we lack the knowledge of or legal liability to answer, I wonder Do librarians have an obligation to warn their patrons about things like this? Should we make it a point to provide information of this type? Personally, I think we do.

But these questions also brought to mind the many times I have witnessed librarians shroud or fail to expose patrons to information because it might lead to more work for the librarian. Perhaps I have just been exposed to a strange set of circumstances and people, but I'm also sure I'm not alone.

Here's a snippet. Read the article from the Children's Defense Fund here or the full report.

"Tax Preparation Fees
A number of factors underlie this substantial redirection of EITC investments. First is the heavy dependence on external providers for tax preparation. For millions of tax filers both the complex federal and state tax laws and the time required to compile the necessary documentation and prepare and file tax returns often seem onerous. As a result, a significant portion of U.S. tax filers each year ultimately turn to commercial tax preparation services and private tax consultants to prepare their federal and state tax returns. This is especially the case among low-income filers. For tax year 2005, 71 percent of EITC recipients in the United States paid to have their returns completed professionally, as compared to 57 percent of non-EITC recipients. Those tax preparation fees drained in total nearly $2.3 billion in EITC benefits from the pockets of these families and individuals.

Refund Anticipation Loans
In order to accelerate receipt of their tax refunds, EITC recipients are more than six times as likely to secure a Refund Anticipation Loan (RAL) as taxpayers who did not file for that credit. According to IRS data, an estimated 5.6 million EITC recipients, or 27 percent of all EITC filers who received refunds for the 2005 tax year, took out RALs, whereas only 4.1 percent of non-EITC taxpayers who received refunds purchased RALs the same year. This wide disparity is attributable at least in part to the aggressive marketing of RALs to the working poor within their communities. But these short-term loans based on the filer’s expected tax refund often have triple-digit interest rates. Ultimately, they can end up costing the client a sizeable portion of his or her refund. Unfortunately, it’s those working families and individuals who most need their hard-earned income that are most often sold short-term, expensive RALs. "