Perhaps the most pervasive set piece of this dodgy business is the combo platter of a Refund Anticipation Loan (RAL) accompanied by the insinuation that Tax Preparer X has some sort of inside track to get you a larger refund. While an RAL may be of benefit to some taxpayers, they are the moral equivalent of a payday loan and generally come with high fees or interest rates. You may even get charged for the pre-paid card that contains your refund advance.
To pick off the low hanging fees, the purveyors of RALs are adept at leveraging taxpayers' need for cash and the lingering distrust of electronic filing . But while the IRS may well take three to four weeks to send you your tax refund if you file by mail, it takes only a few days to get your refund if you file online.
Not be confused with Certified Public Accountants - which comply with a rigid set of guidelines - the tax preparation industry is essentially unregulated by the federal government. This year, with nearly half of all Americans turning to others to prepare their tax filings each year, Congress has finally introduced a bill that would require preparers to demonstrate competency in preparing tax returns and regulating claims for refunds and related documents. But the bill hasn't even gotten out of the Senate Finance Committee yet and may never see the light of day.
To plug this gap, the City of Chicago has adopted a new ordinance called the Bill of Rights for Consumers Using Tax Preparation Services. Under this law, the city is committed to investigate and prosecute tax preparation businesses suspected of deceptive practices. Chicago's Department of Business Affairs and Consumer Protection (BACP) has been charged with enforcing the ordinance on the street and with alerting consumers regarding how to file a complaint. Tax preparers charged with violations can be slapped with fines up to $750 per incident.
This is good to know, but for my money the greater value in this initiative lies in the program's informational materials. On its Bill of Rights web page, the BACP spells out the minimum standards tax preparers are required to meet. Essentially the ordinance mandates that tax preparers are required to provide a detailed explanation of all services and their total costs. Equally important, these businesses must clearly explain that customers are not required to purchase an RAL or similar product. In taking this action, the City has not committed to vetting tax preparers for competency, but is rather looking to prevent fraud, misinformation and practices that qualify as dirty tricks.
Perhaps even more practical is a consumer advisory document prepared by the BACP called Before You Hire A Tax Preparer. As a supplement to the Bill of Rights, this downloadable PDF goes into more detail about how to avoid tax prep scamsters. Simple precautions such as checking for a City of Chicago Business License and Checking with the Better Business Bureau can save a lot of pain.
If you are going to use an outside tax preparer this season, I recommend spending a little time on Chicago's BACP Bill of Right web page and downloading the Before You Hire A Tax Preparer document. It's nice to know the City of Chicago has your back in case you are a victim of tax prep fraud, but it's far better to avoid the situation in the first place.
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