[Congressional Record Volume 151, Number 19 (Friday, February 18, 2005)]
[Extensions of Remarks]
[Page E279]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     INTRODUCTION OF THE LOW-INCOME TAXPAYER PROTECTION ACT OF 2005

                          HON. XAVIER BECERRA

                             of california

                    in the house of representatives

                      Thursday, February 17, 2005

  Mr. BECERRA. Mr. Speaker, today I am proud to introduce legislation 
to assist low-income taxpayers in preparing and filing their tax 
returns and to protect taxpayers from unscrupulous refund anticipation 
loan providers. In particular, the provisions of this legislation will 
benefit taxpayers eligible for the Earned Income Tax Credit (EITC) who 
must fill out dauntingly complex forms--the EITC instructions run 53 
pages alone--and, because of the dearth of free tax preparation 
services to help navigate the process, are heavy users of commercial 
tax preparers.
  The problems addressed by the Low-Income Taxpayer Protection Act of 
2005 have been ignored for too long. The National Taxpayer Advocate's 
FY2002 Annual Report to Congress notes that in 2000, only 1 percent of 
filers with incomes below the EITC income limit received free tax 
preparation assistance from either the IRS Taxpayer Assistance Centers 
or volunteer sites affiliated with the IRS. The remaining low-income 
filers who had their forms filed for them used a commercial preparer. 
While many commercial preparers provide a very valuable, necessary 
service, the work of these men and women is too often overshadowed by 
those who peddle refund anticipation loans (RALs)--usurious short-term 
loans secured by the taxpayer's tax refund, including the EITC. In 
fact, it is estimated that 43 percent of EITC recipients who went to a 
paid tax preparer in 2001 ended up with a RAL.
  The IRS tells us that 12 million taxpayers got RALs in 2003. These 
loans took an estimated $1.4 billion out of the refunds earned by 
American workers. Nearly 80 percent of taxpayers taking out RALs are 
earning less than $35,000 per year. More than half of those who get 
RALs receive the EITC. EITC recipients are disproportionately 
represented in the ranks of those who get RALs, since these taxpayers 
make up just 17 percent of the taxpayer population.
  A new Children's Defense Fund survey of eight states and the District 
of Columbia found that almost $960 million were siphoned away from EITC 
recipients because of the cost of these loans and commercial tax-
preparers who offer them. California taxpayers of modest-incomes paid 
nearly $237 million to these businesses.
  The Consumer Federation of America and the National Consumer Law 
Center found that refund anticipation loan fees cost consumers about 
$1.14 billion in 2002, up almost $200 million from the year before. 
Additional fees for electronic filing, ``document preparation,'' and 
``applications'' added another $406 million to the total. Our 
constituents who can afford it the least are suffering a $1.5 billion 
drain on their tax refunds.
  Taxpayers who take out RALs are often told that the loan is the only 
way they can get assistance with filling their tax returns. The fees 
for preparation services are taken out of the loan proceeds first. Then 
the interest rates are applied to the loans, and low-income taxpayers 
are often unaware at the impact this has on the total amount of their 
refund.
  Mr. Speaker, let me take a moment to break down these estimates from 
the cumulative to the individual using an analysis found in the 
consumer groups' report. Based upon the prices for RALs in 2004, a 
consumer might pay the following in order to get a $2,100 RAL--the 
average refund--from a commercial tax preparation chain this year: (1) 
A loan fee of $99.95, which includes a $24.95 fee supposedly for the 
``dummy'' bank account used to receive the consumer's tax refund from 
the IRS to repay the RAL; and (2) a system administration fee that 
averages $32 per loan. Combine that with tax preparation fees, which 
average about $120, and the total is about $250. The effective annual 
percent rate (APR) on this RAL would be 182 percent.
  Mr. Speaker, the funds unnecessarily paid into usurious refund 
anticipation loans is hard-earned money taken out of the pockets of 
hard-working Americans who are already just barely getting by; it is 
food taken from their tables, it is school supplies taken from their 
children.
  The Office of the Taxpayer Advocate acknowledges that there are 
several factors that drive low-income taxpayers to pay for tax 
preparation, including: (1) Inconvenient location or hours of Volunteer 
Income Tax Assistance (VITA) sites for low-income taxpayers; (2) lack 
of bank accounts for quicker direct deposit of refunds; (3) need or 
desire for immediate cash; and (4) inability to prepare one's own taxes 
due to limited language, literacy, or computer skills.
  The VITA program can be a great resource to low-income taxpayers, 
providing assistance that will help them avoid unscrupulous commercial 
tax-preparers that profit unduly from RALs, VITA is available to 
taxpayers earning less than $36,000 a year. In 2004, only 1.8 million 
returns were filed using VITA assistance, although 21 million taxpayers 
claimed the EITC that year. VITA can better help taxpayers get the full 
refund from EITC they have earned. In the city of Los Angeles alone, 
EITC returned over $585 million in 2003. Mr. Speaker, VITA is vital to 
the economic health of our hardest-working communities and should be 
promoted as a means of avoiding the use of RALs by low-income 
taxpayers.
  This bill takes a two-pronged approach aimed at curtailing the drain 
on our low-income taxpayers by first regulating income tax preparers 
and refund anticipation loan providers and, secondly, creating IRS-
administered grant programs to provide free tax preparation for low-
income taxpayers such as provided by VITA clinics and to help 
individuals establish a bank account for the first time.
  I encourage all of my colleagues to support this legislation.




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