It enables commercial preparers to withhold information on the price of tax preparation. They also make taxpayers less sensitive to the price of preparation. Normally, a merchant’s refusal to provide price information might discourage a consumer from buying a product. However, since the fee is deducted from the RAC, consumers may not be as sensitive to this lack of pricing information.
The ability to deduct fees from a RAC also enables independent preparers to pad the price with add-on fees. In 2008, a trade newsletter published by a software provider bluntly advised:
These results may have contributed to Block’s not to seek a new RAL lending bank for the 2012 tax season
The most successful e-file shops in the U.S. do not use price lists and they “lowball” their tax preparation charges to get the customer in the door. (Note: In some markets it’s customary to throw in free e-file and charge a higher price for the tax return preparation). They then charge more for e-filing and bank products to make up for the “lowball” price. For instance, if the going price for 1040EZ’s in your area is $49 you might want to charge $29. Advertise the $29 price with a note at the bottom (the fine print) that says “1040EZ’s”. Get the customer in the door. Then charge more for the e-file and bank products to make up for the discounted $29 price.
An example of this type of “successful” tax preparer was a Jackson Hewitt franchisee with more than a dozen offices in New York and New Jersey. This Hewitt franchisee allegedly advertised that its minimum fees were $27 for a New York State long form and $22 for a New York State short form. However, the franchisee would automatically add various extra fees, including a 15% multiplier to its tax preparation fee and a $25 hidden RAL/RAC fee. One customer was charged $50 in hidden RAL/RAC fees, a $75 RAL application fee, $57 for the Form 1040, $27 for a NYS Long form, $72 for a Child Care Credit form, and $6 for unemployment compensation – on top of the RAL fee of $150. However, the customer was never given this itemized breakdown of fees.
HSBC had already shown indications that it wanted to leave the RAL to force the bank to make preparations for RAL lending in the 2011 tax season. Thus, the OCC order was seen as a “friendly” directive.
In 2011, H&R Block was left without RALs when the OCC issued a directive prohibiting HSBC (Block’s RAL lending bank partner) from offering the loans
Perhaps surprisingly to some, Block’s business did not suffer from the loss of RALs. Its retail stores saw a gain of 3.6% in 2011 as compared to 2010.
In contrast, when Jackson Hewitt lost its RAL bank partner in 2010, it lost 15% of its retail customers, even though it found RAL coverage for about half of its offices. Hewitt’s business declined by 8% even in markets where it had RALs available, and a whopping 21% in markets where it did not have RALs.
For years, consumer advocates have urged that the IRS provide the ability for taxpayers to electronically file their returns with that agency, without the need for a third party intermediary. A few years ago, the IRS took an initial step by offering a “Fillable Form” option in the Free File program. However, this program does not appear to be directly operated by the IRS, and therefore involves a third party intermediary. When a user clicks on the link to the Fillable Forms program, the IRS website directs the user to another page with the warning online payday AZ “Please note that by clicking on this link, you will leave the IRS web site and enter a privately owned web site created, operated and maintained by a private business.”