[Congressional Record Volume 149, Number 46 (Friday, March 21, 2003)]
[Senate]
[Pages S4283-S4286]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BINGAMAN (for himself and Mr. Akaka):
  S. 685. a bill to assist low income taxpayers in preparing and filing 
their tax returns and to protect taxpayers from unscrupulous refund 
anticipation loan providers, and for other purposes; to the Committee 
on Finance.
  Mr. BINGAMAN. Mr. President, I rise today with my colleague from 
Hawaii, Senator Akaka, to re-introduce the Low Income Taxpayer 
Protection Act of 2003. This legislation, if enacted, will give 
taxpayers much needed assistance with the arduous annual task of 
preparing their Federal tax returns by providing them with real 
alternatives to paying for expensive tax preparation services. In doing 
so, many of these taxpayers will not need to take out expensive and 
oftentimes usurious refund anticipation loans that greatly reduce the 
tax refund that these taxpayers are entitled to receive. As we all 
know, the result of a complicated tax code is complex and confusing tax 
forms. Until Congress is able to provide simple and understandable 
forms for taxpayers, we have an obligation to make sure that taxpayers 
have the ability to prepare and file their tax returns without paying 
for expensive and sometimes abusive services.
  Refund anticipation loans, RALs, are high interest loans offered to 
taxpayers that are secured by their anticipated tax refund. While some 
taxpayers may choose these loans willingly, many are often forced to 
take out a RAL to cover the upfront cost of the preparation services. 
Sadly, many taxpayers get caught with outstanding loans that they can't 
pay off because a mistake was made on their tax return resulting in a 
smaller than anticipated refund. Many of these loans, when annualized, 
have interest rates over 200 percent. As long as we require our 
Nation's taxpayers to determine their own tax liability, we will have a 
responsibility to make sure that these same taxpayers have an 
alternative to these expensive options. We must come up with better 
options for these taxpayers than paying usurious fees and expenses or 
not filing a return.
  Recently the Brookings Institute and the Economic Policy Institute 
released a report that illustrated the abuses occurring with RALs. 
According to this report, roughly $1.75 billion of the earned income 
credit, EIC, funds are annually going to tax return preparers and RAL 
fees and costs. It was not the intent of Congress that this program 
would create such a middleman for these funds. Every dollar that goes 
to these businesses is a dollar that is not going to the intended 
beneficiaries. The EIC has become one of the most effective tools for 
fighting poverty and benefiting low and moderate income working 
families, and so it is essential that every dollar of this credit goes 
to the taxpayer.

[[Page S4284]]

  To help low and moderate income taxpayers, my bill requires all those 
involved with RALs to register with the IRS. Treasury will then be 
required to determine what is a fair amount of interest and fees to be 
charged based on the benefit to the taxpayer and the risk to the 
lender. It will also expand the Volunteer Income Tax Assistance program 
by directly giving them matching funds to operate. VITA clinics are one 
of the few places lower income taxpayers can go to get free assistance 
with their tax returns.
  In New Mexico, the VITA program has had an enormous impact. For 
example, in conjunction with Albuquerque Technical Vocational 
Institute, TVI, over 8,500 taxpayers were assisted with their returns 
last year resulting in over $9 million in refunds being brought back 
into the New Mexico economy. This year, this program is on pace to 
assist even more taxpayers. By utilizing a computer program system 
developed and advocated by Fred Gordon, an accounting instructor at 
TVI, even supervised high school students at Del Norte High School in 
Albuquerque have been preparing and filing tax returns. I commend the 
efforts of those directly involved with this program, as well as, the 
scores of volunteers who give their time to help prepare tax returns 
for their fellow New Mexicans. Through the efforts of groups such as 
the Albuquerque Hispano Chamber of Commerce, Public Service Company of 
New Mexico (PNM), TVI and Wells Fargo Bank, the VITA program has made a 
big difference in New Mexico, but more needs to be done. Our 
legislation will provide programs like these with the ability to get 
some matching Federal grants to make it possible to pay for training 
materials, computers or other necessary equipment. A little money can 
go a long way and I intend to keep working with my colleagues here in 
the Senate until this becomes a reality. This is a truly worthwhile 
goal and one that will greatly help communities in New Mexico as well 
as the rest of the country.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 685

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Low Income Taxpayer 
     Protection Act of 2003''.

     SEC. 2. REGULATION OF INCOME TAX RETURN PREPARERS AND REFUND 
                   ANTICIPATION LOAN PROVIDERS.

       (a) Definitions.--In this Act:
       (1) Income tax return preparer.--
       (A) In general.--The term ``income tax return preparer'' 
     means any individual who is an income tax return preparer 
     (within the meaning of section 7701(a)(36) of the Internal 
     Revenue Code of 1986) who prepares not less than 5 returns of 
     tax imposed by subtitle A of such Code or claims for refunds 
     of tax imposed by such subtitle A per taxable year.
       (B) Exception.--Such term shall not include a federally 
     authorized tax practitioner within the meaning of section of 
     7526(a)(3) of such Code.
       (2) Refund anticipation loan provider.--The term ``refund 
     anticipation loan provider'' means a person who makes a loan 
     of money or of any other thing of value to a taxpayer because 
     of the taxpayer's anticipated receipt of a Federal tax 
     refund.
       (3) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury.
       (b) Regulations.--
       (1) Registration required.--
       (A) In general.--Not later than 120 days after the date of 
     the enactment of this Act, the Secretary shall promulgate 
     regulations that--
       (i) require the registration of income tax return preparers 
     and of refund anticipation loan providers with the Secretary 
     or the designee of the Secretary, and
       (ii) prohibit the payment of a refund of tax to a refund 
     anticipation loan provider or an income tax return preparer 
     that is the result of a tax return which is prepared by the 
     refund anticipation loan provider or the income tax return 
     preparer which does not include the refund anticipation loan 
     provider's or the income tax return preparer's registration 
     number.
       (B) No disciplinary action.--The regulations shall require 
     that an applicant for registration must not have demonstrated 
     any conduct that would warrant disciplinary action under part 
     10 of title 31, Code of Federal Regulations.
       (C) Burden of registration.--In promulgating the 
     regulations, the Secretary shall minimize the burden and cost 
     on the registrant.
       (2) Rules of conduct.--All registrants shall be subject to 
     rules of conduct that are consistent with the rules that 
     govern federally authorized tax practitioners.
       (3) Reasonable fees and interest rates.--The Secretary, 
     after consultation with any expert as the Secretary deems 
     appropriate, shall include in the regulations guidance on 
     reasonable fees and interest rates charged to taxpayers in 
     connection with loans to taxpayers made by refund 
     anticipation loan providers.
       (4) Renewal of registration.--The regulations shall 
     determine the time frame required for renewal of registration 
     and the manner in which a registered income tax return 
     preparer or a registered refund anticipation loan provider 
     must renew such registration.
       (5) Fees.--
       (A) In general.--The Secretary may require the payment of 
     reasonable fees for registration and for renewal of 
     registration under the regulations.
       (B) Purpose of fees.--Any fees required under this 
     paragraph shall inure to the Secretary for the purpose of 
     reimbursement of the costs of administering the requirements 
     of the regulations.
       (c) Prohibition.--Section 6695 of the Internal Revenue Code 
     of 1986 (relating to other assessable penalties with respect 
     to the preparation of income tax returns for other persons) 
     is amended by adding at the end the following new subsection:
       ``(h) Actions on a Taxpayer's Behalf by a Non-Registered 
     Person.--Any person not registered pursuant to the 
     regulations promulgated by the Secretary under the Low Income 
     Taxpayer Protection Act of 2003 who--
       ``(1) prepares a tax return for another taxpayer for 
     compensation, or
       ``(2) provides a loan to a taxpayer that is linked to or in 
     anticipation of a tax refund for the taxpayer,

     shall be subject to a $500 penalty for each incident of 
     noncompliance.''.
       (d) Coordination with Section 6060(a).--The Secretary shall 
     determine whether the registration required under the 
     regulations issued pursuant to this section should be in lieu 
     of the return requirements of section 6060.
       (e) Paperwork Reduction.--The Secretary shall minimize the 
     amount of paperwork required of a income tax return preparer 
     or a refund anticipation loan provider to meet the 
     requirements of these regulations.

     SEC. 3. IMPROVED SERVICES FOR TAXPAYERS.

       (a) Electronic Filing Efforts.--
       (1) In General.--The Secretary shall focus electronic 
     filing efforts on benefiting the taxpayer by--
       (A) reducing the time between receipt of an electronically 
     filed return and remitting a refund, if any,
       (B) reducing the cost of filing a return electronically,
       (C) improving services provided by the Internal Revenue 
     Service to low and moderate income taxpayers,
       (D) providing tax-related computer software at no or 
     nominal cost to low and moderate income taxpayers, and
       (E) providing electronic filing for all taxpayers without 
     the use of an intermediary.
       (2) Report.--Not later than 120 days after the date of the 
     enactment of this Act, the Secretary shall prepare and submit 
     to Congress a report on the efforts made pursuant to 
     paragraph (1).
       (b) Volunteer Income Tax Assistance Program.--
       (1) Study.--The Secretary shall undertake a study on the 
     expansion of the volunteer income tax assistance program to 
     service more low income taxpayers.
       (2) Report.--Not later than 120 days after the date of the 
     enactment of this Act, the Secretary shall prepare and submit 
     to Congress a report on the study conducted pursuant to 
     paragraph (1).
       (c) Tele-Filing.--The Secretary shall ensure that tele-
     filing is available for all taxpayers for the filing of tax 
     returns with respect to taxable years beginning in 2003.
       (d) Termination of the Debt Indicator Program.--The 
     Secretary shall terminate the Debt Indicator program 
     announced in Internal Revenue Service Notice 99-58.
       (e) Direct Deposit Accounts.--The Secretary shall allocate 
     resources to programs to assist low income taxpayers in 
     establishing accounts at financial institutions that receive 
     direct deposits from the United States Treasury.
       (f) Pilot Program for Mobile Tax Return Filing Offices.--
       (1) In general.--The Secretary shall establish a pilot 
     program for the creation of four mobile tax return filing 
     offices with electronic filing capabilities.
       (2) Location of service.--
       (A) In general.--The mobile tax return filing offices shall 
     be located in communities that the Secretary determines have 
     a high incidence of taxpayers claiming the earned income tax 
     credit.
       (B) Indian reservation.--At least one mobile tax return 
     filing office shall be on or near an Indian reservation (as 
     defined in section 168(j)(6) of the Internal Revenue Code of 
     1986).

     SEC. 4. ASSISTANCE PROGRAM TO IMPROVE ACCESS TO FEDERALLY 
                   INSURED FINANCIAL INSTITUTIONS FOR TAXPAYERS.

       (a) Findings and Purpose.--
       (1) Findings.--Congress finds the following:
       (A) Approximately 40,000,000 Americans are unbanked and not 
     utilizing mainstream, insured financial institutions.
       (B) In 1999, nearly half of the $30,000,000,000 in earned 
     income tax credits (EITC) claimed

[[Page S4285]]

     nationwide was refunded through refund anticipation loans, 
     and an estimated $1,750,000,000 intended to assist low-income 
     families through the EITC was received by commercial tax 
     preparers and affiliated national banks to pay for tax 
     assistance, electronic filing of returns, and high-cost 
     refund loans.
       (C) Refund anticipation loans carry interest rates in a 
     range between 97.4 percent to more than 2000 percent.
       (D) An estimated 45 percent of earned income tax credit 
     recipients pay for check cashing services, which reduces EITC 
     benefits by $130,000,000.
       (E) Individuals with bank accounts can receive their tax 
     refunds faster than waiting for a paper check and without the 
     need to utilize refund anticipation loans or check cashiers.
       (F) Individuals with federally insured depository accounts 
     have an increased opportunity to access financial services at 
     mainstream financial institutions, which typically have 
     reduced costs for consumers.
       (2) Purpose.--It is the purpose of this section to 
     establish a grant program to provide unbanked low-and 
     moderate-income taxpayers with tax preparation services and 
     increase their access to financial services by the 
     establishment of an account at a federally insured depository 
     institution or credit union and the provision of financial 
     education.
       (b) Establishment of Program.--The Secretary is authorized 
     to award demonstration project grants (including multi-year 
     grants) to eligible entities to provide tax preparation 
     services and assistance along with establishing an account in 
     a federally insured depositary institution for individuals 
     that currently do not have such an account.
       (c) Eligible Entities.--
       (1) In general.--An entity is eligible to receive a grant 
     under this section if such an entity is--
       (A) an organization described in section 501(c)(3) of the 
     Internal Revenue Code of 1986 and exempt from tax under 
     section 501(a) of such Code,
       (B) a federally insured depository institution,
       (C) an agency of a State or local government,
       (D) a community development financial institution,
       (E) an Indian tribal organization,
       (F) an Alaska Native Corporation,
       (G) a Native Hawaiian organization,
       (H) a labor organization, or
       (I) a partnership comprised of 1 or more of the entities 
     described in the preceding subparagraphs.
       (2) Definitions.--For purposes of this section--
       (A) Federally insured depository institution.--The term 
     ``federally insured depository institution'' means any 
     insured depository institution (as defined in section 3 of 
     the Federal Deposit Insurance Act (12 U.S.C. 1813)) and any 
     insured credit union (as defined in section 101 of the 
     Federal Credit Union Act (12 U.S.C. 1752)).
       (B) Community development financial institution.--The term 
     ``community development financial institution'' means any 
     organization that has been certified as such pursuant to 
     section 1805.201 of title 12, Code of Federal Regulations.
       (C) Alaska native corporation.--The term ``Alaska Native 
     Corporation'' has the same meaning as the term ``Native 
     Corporation'' under section 3(m) of the Alaska Native Claims 
     Settlement Act (43 U.S.C. 1602(m)).
       (D) Native Hawaiian organization.--The term ``Native 
     Hawaiian organization'' means any organization that--
       (i) serves and represents the interests of Native 
     Hawaiians, and
       (ii) has as a primary and stated purpose the provision of 
     services to Native Hawaiians.
       (E) Labor organization.--The term ``labor organization'' 
     means an organization in which employees participate and 
     which exists for the purpose, in whole or in part, of dealing 
     with employers concerning grievances, labor disputes, wages, 
     rates of pay, hours of employment, or conditions of work.
       (d) Application.--An eligible entity desiring a grant under 
     this section shall submit an application to the Secretary in 
     such form and containing such information as the Secretary 
     may require.
       (e) Limitation on Administrative Costs.--A recipient of a 
     grant under this section may not use more than 6 percent of 
     the total amount of such grant in any fiscal year for the 
     administrative costs of carrying out the programs funded by 
     such grant in such fiscal year.
       (f) Evaluation and Report.--For each fiscal year in which a 
     grant is awarded under this section, the Secretary shall 
     submit a report to Congress containing a description of the 
     activities funded, amounts distributed, and measurable 
     results, as appropriate and available.
       (g) Authorization of Appropriations.--There is authorized 
     to be appropriated to the Secretary, for the grant program 
     described in this section, $10,000,000, or such additional 
     amounts as deemed necessary, to remain available until 
     expended.
       (h) Regulations.--The Secretary is authorized to promulgate 
     regulations to implement and administer the grant program 
     under this section.

     SEC. 5. MATCHING GRANTS TO LOW-INCOME TAXPAYER CLINICS FOR 
                   RETURN PREPARATION.

       (a) In General.--Chapter 77 of the Internal Revenue Code of 
     1986 (relating to miscellaneous provisions) is amended by 
     inserting after section 7526 the following new section:

     ``SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME 
                   TAXPAYERS.

       ``(a) In General.--The Secretary may, subject to the 
     availability of appropriated funds, make grants to provide 
     matching funds for the development, expansion, or 
     continuation of qualified return preparation clinics.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Qualified return preparation clinic.--
       ``(A) In general.--The term `qualified return preparation 
     clinic' means a clinic which--
       ``(i) does not charge more than a nominal fee for its 
     services (except for reimbursement of actual costs incurred), 
     and
       ``(ii) operates programs which assist low-income taxpayers 
     in preparing and filing their Federal income tax returns, 
     including schedules reporting sole proprietorship or farm 
     income.
       ``(B) Assistance to low-income taxpayers.--A clinic is 
     treated as assisting low-income taxpayers under subparagraph 
     (A)(ii) if at least 90 percent of the taxpayers assisted by 
     the clinic have incomes which do not exceed 250 percent of 
     the poverty level, as determined in accordance with criteria 
     established by the Director of the Office of Management and 
     Budget.
       ``(2) Clinic.--The term `clinic' includes--
       ``(A) a clinical program at an eligible educational 
     institution (as defined in section 529(e)(5)) which satisfies 
     the requirements of paragraph (1) through student assistance 
     of taxpayers in return preparation and filing, and
       ``(B) an organization described in section 501(c) and 
     exempt from tax under section 501(a) which satisfies the 
     requirements of paragraph (1).
       ``(c) Special Rules and Limitations.--
       ``(1) Aggregate limitation.--Unless otherwise provided by 
     specific appropriation, the Secretary shall not allocate more 
     than $10,000,000 per year (exclusive of costs of 
     administering the program) to grants under this section.
       ``(2) Other applicable rules.--Rules similar to the rules 
     under paragraphs (2) through (5) of section 7526(c) shall 
     apply with respect to the awarding of grants to qualified 
     return preparation clinics.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     77 of the Internal Revenue Code of 1986 is amended by 
     inserting after the item relating to section 7526 the 
     following new item:

``Sec. 7526A. Return preparation clinics for low-income taxpayers.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to grants made after the date of the enactment of 
     this Act.

  Mr. AKAKA. Thank you, Mr. President. I rise today to speak on the Low 
Income Taxpayer Protection Act of 2003, which Senator Bingaman and I 
are introducing today. I thank Senator Bingaman for his leadership on 
this important issue.
  The legislation that my colleague from New Mexico and I are 
introducing would provide the Department of the Treasury with the 
authority to regulate income tax refund anticipation loans, RALs, and 
prohibit excessive fees. The bill would also provide additional 
opportunities for low-income taxpayers to receive assistance with tax 
preparation and filing their taxes and thus, we are seeking to meet 
taxpayers' needs for assistance while attempting to discourage a 
predatory practice.
  According to the U.S. Census Bureau, in 2001, the Earned Income Tax 
Credit, EITC, was responsible for elevating nearly four million people 
above the poverty line. This credit has helped and continues to help 
low-income individuals and families to meet their food, clothing, 
housing, transportation, and education needs.
  However, while this tax relief is benefitting families who need it 
most, the EITC's impact is being unnecessarily limited. Earned Income 
Tax Credit benefits intended for working families are increasingly 
being diminished by often exorbitant tax preparation fees and the 
growing use of high-interest refund anticipation loans, which typically 
carry triple-digit interest rates.
  In 1999, according to a report published by the Brookings 
Institution, an estimated $1.75 billion intended to assist low-income 
families went to commercial tax preparers and affiliated national banks 
for tax assistance, electronic filing of returns, and high-cost refund 
loans. Although tax preparation services are useful, when combined with 
refund anticipation loans and other fees, these services are 
overpriced. The report further stated that 39 percent of taxpayers who 
earned the EITC received their refund through a refund anticipation 
loan, while only

[[Page S4286]]

four percent of those who did not receive the EITC purchased a refund 
anticipation loan. Clearly, RALs were heavily marketed to a specific 
population of taxpayer. Forty-seven percent of all EITC dollars were 
distributed to recipients through these loans. In my state of Hawaii, 
in the Honolulu metropolitan statistical area, 27.7 percent of all EITC 
dollars were associated with refund anticipation loans. These loans 
take money away from the day-to-day, kitchen-table needs of the low-
income families.
  Furthermore, refund anticipation loans carry interest rates that 
range from 97.4 percent to more than 2,000 percent. The interest rates 
and fees charged on these products are not justified for the short 
length of time that these loans cover. The typical rapid refund loan 
length is two weeks. These loans carry even less risk because of the 
Debt Indicator program. The Debt Indicator program allows the Internal 
Revenue Service to inform the lender if the applicant for a refund loan 
has any outstanding Federal debts. The risk is further reduced because 
loan issuers share information about outstanding delinquencies that 
refund anticipation loan applicants owe and are able to collect debts 
for each other.
  This bill would terminate the Debt Indicator program. In 1995, the 
use of the Debt Indicator was suspended because of massive fraud in e-
filed returns with RALs. After the program was discontinued, RAL 
participation declined. The use of the Debt Indicator was reinstated in 
1999. Remarks from H & R Block Chief Executive Officer Frank L. 
Salizzoni upon the reinstatement of the program state that the Debt 
Indicator ``is good news for many of our clients who opt to receive the 
amount of their refund through Refund Anticipation Loans. The IRS 
program will likely result in substantially lower fees for this 
service.'' However, according to a study conducted by the Consumer 
Federation of America and the National Consumer Law Center, that has 
not been the case for at least one of the major tax preparers. H & R 
Block and Household Bank's fees dropped for a year after the Debt 
Indicator was reinstated. The fees rose significantly from 2000 to 
2001, which increased H & R Block's revenue from RALs by 49 percent. 
Per RAL revenue rose by 43.9 percent while RAL sales volume increased 
by only 2.7 percent. The expected outcome that RAL prices would go down 
as a result of the reinstatement of the indicator has not occurred. The 
use of the Debt Indicator should again be stopped.
  Another important provision in the bill is authorization language for 
a grant program to link tax preparation services with the establishment 
of a bank account. There are still approximately four million EITC 
recipients that are classified as unbanked, and lack a formal 
relationship with a financial institution. It has been estimated that 
45 percent of EITC recipients pay for check cashing services. These 
check cashing services reduce EITC benefits by $130 million. Having a 
bank account allows individuals not only to receive their tax refund 
check faster than waiting for a paper check, but also does not impose 
the excessive fees that check cashing services and refund anticipation 
loan providers assess. An account at a bank or credit union provides 
consumers alternatives to rapid refund loans, check cashing services, 
and lower cost remittances. In addition, bank and credit union accounts 
provide access to saving and borrowing services found at mainstream 
financial institutions. This grant program builds upon the First 
Accounts initiative which has funded pilot projects that have coupled 
tax preparation services with the establishment of bank accounts. An 
example of such a project is the partnership that has been established 
among The Center for Law & Human Services, Accounting Aid Society, 
ShoreBank, National Consumer Law Center, and Consumer Federation of 
America that is taking place in Chicago and Detroit. More of these 
programs are necessary to provide much needed tax preparation 
assistance and to encourage the use of mainstream financial services.
  I encourage all of my colleagues to support this legislation.
                                 ______