    Refund Anticipation Loans (05-JUN-08, GAO-08-800R).

    Taxpayers who do not want to wait for their tax refunds from the
    Internal Revenue Service (IRS) may choose to obtain refund
    anticipation loans (RAL). RALs are short-term, high-interest bank
    loans that are advertised and brokered by both national chain and
    local tax preparation companies. Although the annual percentage
    rate (APR) on RALs can be over 500 percent, they allow taxpayers
    to receive cash refunds quickly--sometimes within the same day
    and even within an hour of filing their tax returns. After filing
    a taxpayer's return electronically, the tax preparer works in
    cooperation with a bank to advance the refund as a loan minus tax
    preparation costs, other fees, and a finance charge. As part of
    the RAL process, the taxpayer provides authorization to IRS to
    send the refund directly to the bank to repay the loan. Despite
    the benefits of receiving cash quickly based on an expected
    refund, IRS officials and others have raised concerns about
    whether taxpayers are fully aware of the costs involved and their
    tax filing alternatives. For example, in a 2007 report to
    Congress, the IRS National Taxpayer Advocate questioned whether
    RAL consumers actually understand the nature of the loan product
    they are receiving. According to the Advocate, while tax
    preparers offering RALs are required to obtain taxpayers'
    signatures on written disclosure forms, there are no requirements
    that such disclosures be made orally. The Advocate wrote that
    despite the written disclosures provided to them, consumers may
    not fully understand that the RAL is in fact a loan and not
    simply a way to receive a faster refund from IRS. Further,
    without an oral explanation, consumers may lack a general
    understanding of the nature of the product and its impact on
    credit reports, as well as other consequences of default. In
    January 2008, in order to address this issue, IRS and the
    Department of the Treasury (Treasury) indicated in a Federal
    Register notice that they were considering rules to prohibit tax
    preparers from marketing RALs based on information gathered
    during the tax preparation process. In their notice, IRS and
    Treasury cite concerns about tax preparers improperly inflating
    refunds in order to market RALs, particularly when working with
    customers eligible for the earned income tax credit (EITC). IRS
    studies have found that this credit is particularly susceptible
    to fraud, in many cases perpetuated by paid tax preparers. In
    1999, an IRS compliance study found $10.4 billion of overclaims
    on the EITC, of which $7.2 billion (70 percent) was attributed to
    tax returns completed by paid preparers. Based on continuing
    concerns over how RALs are marketed to taxpayers, Congress
    requested that GAO perform a limited investigation to identify
    examples of where RALs are marketed and the types of information
    tax preparers disclose to potential RAL applicants.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-08-800R
        ACCNO:   A82268
      TITLE:     Refund Anticipation Loans
         DATE:   06/05/2008
      SUBJECT:   Accountability
    	     Consumer protection
    	     Income taxes
    	     Information disclosure
    	     Loan interest rates
    	     Loans
    	     Personal income taxes
    	     Tax administration
    	     Tax administration systems
    	     Tax law
    	     Tax refunds
    	     Tax returns
    	     Taxpayers
    	     Truth-in-lending law
    	     Voluntary compliance

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    GAO-08-800R

    This is the accessible text file for GAO report number GAO-08-800R
    entitled 'Refund Anticipation Loans' which was released on June 5, 2008.

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    GAO-08-800R:

    United States Government Accountability Office:
    Washington, DC 20548:

    June 5, 2008:

    The Honorable John Lewis:
    Chairman:
    Subcommittee on Oversight:
    Committee on Ways and Means:
    House of Representatives:

    Subject: Refund Anticipation Loans:

    Dear Mr. Chairman:

    Taxpayers who do not want to wait for their tax refunds from the
    Internal Revenue Service (IRS) may choose to obtain refund anticipation
    loans (RAL). RALs are short-term, high-interest bank loans that are
    advertised and brokered by both national chain and local tax
    preparation companies. Although the annual percentage rate (APR) on
    RALs can be over 500 percent,[Footnote 1] they allow taxpayers to
    receive cash refunds quickly--sometimes within the same day and even
    within an hour of filing their tax returns. After filing a taxpayer's
    return electronically, the tax preparer works in cooperation with a
    bank to advance the refund as a loan minus tax preparation costs, other
    fees, and a finance charge. As part of the RAL process, the taxpayer
    provides authorization to IRS to send the refund directly to the bank
    to repay the loan.

    Despite the benefits of receiving cash quickly based on an expected
    refund, IRS officials and others have raised concerns about whether
    taxpayers are fully aware of the costs involved and their tax filing
    alternatives. For example, in a 2007 report to Congress, the IRS
    National Taxpayer Advocate questioned whether RAL consumers actually
    understand the nature of the loan product they are receiving. According
    to the Advocate, while tax preparers offering RALs are required to
    obtain taxpayers' signatures on written disclosure forms, there are no
    requirements that such disclosures be made orally. The Advocate wrote
    that despite the written disclosures provided to them, consumers may
    not fully understand that the RAL is in fact a loan and not simply a
    way to receive a faster refund from IRS. Further, without an oral
    explanation, consumers may lack a general understanding of the nature
    of the product and its impact on credit reports, as well as other
    consequences of default. In January 2008, in order to address this
    issue, IRS and the Department of the Treasury (Treasury) indicated in a
    Federal Register notice that they were considering rules to prohibit
    tax preparers from marketing RALs based on information gathered during
    the tax preparation process. In their notice, IRS and Treasury cite
    concerns about tax preparers improperly inflating refunds in order to
    market RALs, particularly when working with customers eligible for the
    earned income tax credit (EITC).[Footnote 2] IRS studies have found
    that this credit is particularly susceptible to fraud, in many cases
    perpetuated by paid tax preparers. In 1999, an IRS compliance study
    found $10.4 billion[Footnote 3] of overclaims on the EITC, of which
    $7.2 billion (70 percent) was attributed to tax returns completed by
    paid preparers.

    Based on continuing concerns over how RALs are marketed to taxpayers,
    you requested that we perform a limited investigation to identify
    examples of where RALs are marketed and the types of information tax
    preparers disclose to potential RAL applicants.

    To identify where tax preparation and RALs are marketed to taxpayers,
    we used Internet searches to identify a nonrepresentative selection of
    22 different tax preparers across the country that advertised both tax
    preparation and RALs. We called these preparers to confirm the
    availability of the RALs they offered, as well as any incentives or
    discounts connected with tax preparation and RALs. We confirmed that
    these tax preparers were located in an existing business, but we did
    not attempt to investigate the types of business arrangements between
    the tax preparers and the colocated business. Posing as taxpayers, our
    investigators also visited a nonrepresentative selection of 18
    different tax preparers in proximity to GAO, specifically preparers in
    the Washington, D.C., and Baltimore, Maryland, metropolitan areas. We
    took photographs of the offices used by the tax preparers where
    appropriate. We selected national chain preparers and small, local
    companies for our site visits.

    To determine what types of information tax preparers disclose to
    potential RAL applicants, our undercover investigators had bogus paper
    tax returns prepared at five of the preparers they visited.
    Investigators used fictitious names, cover stories, and income
    information. It was not in the scope of our work to test a scenario in
    which we qualified for the EITC and we did not allow our bogus returns
    to be filed with IRS--the final requirement for obtaining a RAL.
    [Footnote 4] We therefore attempted to collect information about fees
    and charges associated with RALs through our interactions with the tax
    preparers, displays in the tax preparation offices, information on the
    preparers' Web sites, and any literature the preparers offered us on
    RALs. Using this information, we calculated the APR associated with the
    RALs where possible.

    We conducted this investigation from January 2008 through March 2008 in
    accordance with standards prescribed by the President's Council on
    Integrity and Efficiency. Since we did not apply for a RAL as part of
    this investigation, we were not able to evaluate whether the tax
    preparers gave legally sufficient written disclosure. We also did not
    use an EITC scenario and therefore were not able to test whether tax
    preparers would use the credit to improperly inflate our refunds.
    Because we selected a nonrepresentative selection of tax preparers
    across the country for this investigation, it is not possible to
    generalize the results of our work and draw conclusions about all tax
    preparers.

    In summary, we found that RALs are marketed by tax preparers that
    operate in a wide variety of businesses, ranging from major retail
    stores to automobile dealers and shoe stores. Of the 40 tax preparers
    we called or visited, 37 offered RALs. 13 tax preparers offered year-
    round tax preparation in their own stand-alone offices, while 27 were
    open only during the tax season and operated at tables or desks within
    existing businesses offering other products and services. Of these 27
    preparers, 13 were located in businesses that target low-income
    customers, such as check cashers, payday loan vendors, rent-to-own
    stores, and pawn shops, and 9 offered incentives to encourage tax
    customers to spend their refunds on the businesses' primary goods and
    services. For example, an auto dealer we visited told us that if we
    didn't have enough money for the down payment on a car, we could get
    our taxes done by its tax preparer and use the refund as a down
    payment. 14 tax preparers took advantage of the low overhead costs of
    operating in an existing business, but did not appear to target low-
    income populations.

    The tax preparers we visited were generally willing to provide
    information about RALs, though because of the limited nature of our
    investigation, we were not able to assess the legal sufficiency of all
    tax preparers' advertisements and written disclosures. All five
    preparers that completed federal and state tax returns for our
    fictitious individuals gave an estimate of the fees and finance charges
    associated with a RAL, and most calculated the refund amount available
    after deducting fees. However, we found that tax preparers did not use
    a consistent method to calculate the APRs in their advertisements and
    at least one preparer did not calculate its advertised APR according to
    Truth in Lending Act requirements. For example, the APR on a $1,000 RAL
    at this tax preparer was represented in advertisements as 36 percent.
    However, when a $30 account fee is included in the APR calculation in
    accordance with the act, the APR is actually 135 percent. The preparer
    included this fee in an advertisement showing the various fees and
    finance charges associated with a RAL, but noted in small print that
    the account fee is not actually included in the calculated APR shown in
    the advertisement.

    Background:

    According to IRS data, the average individual tax refund for calendar
    year 2006 tax returns was $2,324 on approximately 106 million tax
    returns.[Footnote 5] According to the IRS National Taxpayer Advocate,
    during the 2005 filing season, 9.6 million taxpayers eligible for
    refunds that all together totaled $28.7 billion applied for RALs.

    Previous GAO reports have found that fees for RALs vary widely and,
    when combined with tax preparation fees, may considerably reduce a
    taxpayer's refund.[Footnote 6] However, these loans remain popular,
    especially among low-income taxpayers. IRS data show that RALs are
    disproportionately purchased by low-income taxpayers, especially those
    receiving the EITC. The EITC is a refundable federal income tax credit
    for low-income working individuals and families designed to offset the
    burden of Social Security taxes and to provide an incentive to work. To
    qualify, taxpayers must meet certain requirements and file tax returns.
    According to IRS 2004 filing season data, 56 percent of taxpayers who
    obtained RALs also received the EITC, even though EITC recipients made
    up only 17 percent of the general population of taxpayers. In its 2007
    Objectives Report to Congress, the National Taxpayer Advocate
    identified several reasons taxpayers purchase RALs:

    * need for immediate cash;

    * lack of information about the product or alternatives;

    * immediate access to a large sum of money, typically the EITC;

    * inability to pay preparation and filing fees out of pocket, and;

    * experience of friends and family.

    Refund anticipation loans are subject to the Truth in Lending Act
    [Footnote 7], which is intended to help consumers avoid the uninformed
    use of credit through meaningful disclosure of credit terms by lenders
    and to protect consumers against inaccurate and unfair credit
    practices. Under regulations issued to implement this act, if a RAL
    vendor advertises an APR, it must be the calculated according to
    specific formulas and must include certain fees in the finance charge.
    The finance charge is defined as the cost of consumer credit as a
    dollar amount and includes any charge payable directly or indirectly by
    the consumer and imposed directly or indirectly by the creditor as
    incident to or as a condition of credit.[Footnote 8] Finance charges
    include interest; service, transaction, activity, and carrying charges;
    and loan fees. Any additional fees imposed as a result of the customer
    taking a RAL must be included as part of the finance charge.[Footnote
    9] Finance charges do not include application fees charged to all
    applicants or late payment charges.

    If a consumer asks about the cost of a RAL, the creditor is required to
    disclose the APR, unless it cannot be determined in advance. In this
    case, the creditor is required to state the APR for a sample
    transaction. Before the transaction is consummated, the creditor must
    disclose certain information in writing to the borrower. This
    information must be disclosed clearly and conspicuously in a form that
    the consumer may keep[Footnote 10] and includes the following:[Footnote
    11]

    * itemization of the amount provided to the borrower, minus prepaid
    finance charges (fees);

    * finance charges, or "the dollar amount the credit will cost you";

    * the APR, or "the cost of your credit as a yearly rate;" and;

    * total of payments, or "the amount you will have paid when you have
    made all scheduled payments."

    Tax preparers providing electronic filing services must comply with
    rules in the IRS Handbook for Authorized IRS e-file Providers of
    Individual Income Tax Returns, which requires tax return preparers that
    sell RALs to their clients to:

    * ensure that taxpayers understand that by agreeing to a RAL or other
    financial product they will not receive their refunds from IRS as IRS
    will send their refunds to the financial institutions;

    * advise taxpayers that RALs are interest-bearing loans and not a
    quicker way of receiving their refunds from IRS;

    * advise taxpayers that if a direct deposit is not received within the
    expected time frame for whatever reason, the taxpayers may be liable to
    the lender for additional interest and other fees, as applicable for
    the RAL or other financial product;

    * advise taxpayers of all fees and other known deductions to be paid
    from their refunds and the remaining amounts the taxpayers will
    actually receive;

    * secure the taxpayers' written consent to disclose tax information to
    the lending financial institutions in connection with applications for
    RALs or other financial products; and;

    * adhere to fee restrictions and advertising standards prohibiting tax
    preparers from accepting fees contingent upon the amount of the RAL or
    using improper or misleading advertising in relation to time frames for
    refunds and RALs.

    Results of Investigation:

    RALs are marketed by tax preparers that operate in a wide variety of
    businesses, ranging from major retail stores to automobile dealers and
    shoe stores. Of the 40 tax preparers we called or visited, 37 offered
    RALs. 13 tax preparers offered year-round tax preparation in their own
    stand-alone offices, while 27 were open only during the tax season and
    operated at tables or desks within existing businesses offering other
    products and services. Of these 27 preparers, 13 were located in
    businesses that target low-income customers; however, 14 chose the
    locations of their businesses because of low overhead costs. One tax
    preparer we observed minimized overhead costs by operating out of a
    trailer in the parking lot of a gas station. Tax preparers we visited
    were generally willing to provide information about RALs, but did not
    use a consistent method to calculate their advertised APRs.

    See table 1 for examples of seasonal tax preparers that we identified
    during our investigation.

    Table 1: Selected Businesses Marketing Tax Preparation and RALs:

    Primary services: Auto dealer;
    Location: Virginia;
    Incentive (if offered): Free tax preparation with purchase of car.

    Primary services: Check cashing;
    Location: Maryland;
    Incentive (if offered): [Empty].

    Primary services: Check cashing;
    Location: Mississippi;
    Incentive (if offered): Will cash refund check for 1.5 percent
    (regularly 3 percent).

    Primary services: Equipment trailer;
    Location: Maryland;
    Incentive (if offered): [Empty].

    Primary services: Discount shoe store;
    Location: Maryland;
    Incentive (if offered): Free pair of shoes with tax preparation.

    Primary services: Pawn shop;
    Location: Alabama;
    Incentive (if offered): [Empty].

    Primary services: Pawn shop;
    Location: Alabama;
    Incentive (if offered): [Empty].

    Primary services: Pawn shop;
    Location: New Hampshire;
    Incentive (if offered): A $5 to $10 discount on buying back previously
    pawned item.

    Primary services: Pawn shop;
    Location: North Carolina;
    Incentive (if offered): [Empty].

    Primary services: Pawn shop;
    Location: Virginia;
    Incentive (if offered): A $50 gift certificate to use in the store.

    Primary services: Pawn shop, rent to own;
    Location: Mississippi;
    Incentive (if offered): Willing to negotiate a discount on rental
    items.

    Primary services: Payday loans;
    Location: Missouri;
    Incentive (if offered): [Empty].

    Primary services: Real estate;
    Location: Alabama;
    Incentive (if offered): [Empty].

    Primary services: Rent to own;
    Location: Virginia;
    Incentive (if offered): Tax customers eligible for reduced prices on
    selected merchandise for sale and rental.

    Primary services: Rent to own;
    Primary services:
    Location: Mississippi;
    Incentive (if offered): Willing to negotiate a discount on rental
    items.

    Primary services: Retail store; Kentucky;
    Location: Kentucky;
    Incentive (if offered): [Empty].

    Primary services: Small business services;
    Location: Kentucky;
    Incentive (if offered): [Empty].

    Primary services: Van rental;
    Location: Mississippi;
    Incentive (if offered): [Empty].

    Primary services: Vending machine service;
    Location: North Carolina;
    Incentive (if offered): [Empty].

    Source: GAO.

    [End of table]

    See figure 1 for a photograph of a tax preparer located in the parking
    lot of a former gas station in Maryland.

    Figure 1: Seasonal Tax Preparation Service Operating Out of a Trailer:

    [See PDF for image]

    Photograph of tax preparation trailer.

    Source: GAO.

    [End of figure]

    27 of the tax preparers we called or visited were located in existing
    businesses in order to market to the businesses' customer base, and 13
    of these were located in businesses targeting low-income customers. IRS
    data show that RALs are disproportionately purchased by low-income
    taxpayers, and some seasonal tax preparers market to this population by
    operating within businesses that serve low-income customers, such as
    check cashers, payday loan vendors, rent-to-own stores, and pawn shops.
    See figure 2 for a photograph of one check cashing business offering
    tax preparation.

    Figure 2: Check Cashing Service Offering Tax Preparation:

    [See PDF for image]

    Photograph of check cashing service store front.

    Source: GAO.

    [End of figure]

    We called or visited 9 businesses that had partnered with seasonal tax
    preparers to use tax preparation and RALs to offer customers incentives
    to purchase the businesses' primary goods or services. In some cases,
    RAL customers are able to receive their cash refunds in as little as an
    hour after filing their returns, while they are still inside the
    business or store where the seasonal tax preparer is located. Some of
    these businesses encourage customers to spend the refund immediately,
    by offering discounts on their products and services. For example, an
    auto dealer we visited told us that if we didn't have enough money for
    the down payment on a car, we could get our taxes done by its tax
    preparer and use the refund as a down payment. See figure 3 for a
    photograph of this business.

    Figure 3: Auto Dealer Encouraging Customers to "Bring Your W2 Form" for
    Credit toward a Car Purchase:

    [See PDF for image]

    Photograph of auto dealership store front.

    Source: GAO.

    [End of figure]

    Furthermore, a rent-to-own store advertised that it "will put money in
    your hands in as little as 4 hours!" and that getting your taxes done
    at the store "results in greater buying power. All tax customers are
    eligible for reduced prices on selected merchandise." We visited two
    shoe stores that offered customers a free pair of shoes as an incentive
    to use the in-store tax preparation services. See figure 4 for a
    photograph of one of these business.

    Figure 4: Shoe Store Offering a Free Pair of Shoes with Tax
    Preparation:

    [See PDF for image]

    Photograph of shoe store front.

    Source: GAO.

    Note: Name of tax preparer obscured in this photo.

    [End of figure]

    We found 14 tax preparers that operated within existing businesses in
    order to take advantage of low overhead costs but did not specifically
    target low-income customers. These included those in a vending service
    company, a small business services company, and a van rental store. In
    general, these businesses did not offer any incentives to attract tax
    customers to their primary products. Some national tax preparers also
    market RALs by offering tax preparation in major retail chains. Tax
    preparation services in these retail stores are seasonal and generally
    close around April 15. Several of the businesses we observed offered
    multiple services unrelated to tax preparation. See figure 5 for a
    photograph of a business that offers various services in addition to
    tax preparation and RALs.

    Figure 5: Business Offering Insurance, Travel, Notary, and Payroll
    Services in Addition to Tax Preparation and RALs:

    [See PDF for image]

    Photograph of business offerings sign.

    Source: GAO.

    [End of figure]

    See figure 6 for a photograph of an immigration services business with
    a sign encouraging customers to file taxes and "Get Money Fast" with a
    RAL.

    Figure 6: Immigration Services Business Encouraging Customers to "Get
    Money Fast" with a RAL:

    [See PDF for image]

    Photograph of store front.

    Source: GAO.

    Note: Name of tax preparer obscured in this photo.

    [End of figure]

    We found that tax preparers were generally willing to provide
    information about RALs during the tax preparation process. All 5
    preparers that completed federal and state tax returns for our
    fictitious taxpayers gave an estimate of the fees and finance charges
    associated with a RAL based on our refund amounts. Four of the
    preparers calculated the refund amount available after deducting fees
    and 4 others warned us that RALs are subject to bank approval. Three
    preparers explained the average time required to receive a direct
    deposit refund from IRS compared to the time to receive a RAL and 3
    others ensured that we understood that a RAL is a loan, not a quick
    refund. However, only 2 of the tax preparers we visited had RAL fees or
    APRs posted prominently in their offices and none were willing or able
    to give us written materials on fees or APRs unless we applied for a
    RAL.[Footnote 12] During our visits, we did not experience any pressure
    to apply for a RAL. Of the 40 tax preparers we called or visited, 6
    discouraged us from applying for RALs because of the high interest
    rates or the short time it actually takes to receive a refund directly
    from IRS.

    Tax preparers offering refund anticipation loans must abide by the
    requirements of the Truth in Lending Act and the IRS Handbook for
    Authorized IRS e-file Providers of Individual Income Tax Returns. Under
    the Truth in Lending Act, if a tax preparer chooses to advertise the
    APR for a RAL, it must be calculated with a finance charge that
    includes all fees exceeding the fees charged for the same tax
    preparation service without a RAL.[Footnote 13] During our limited
    investigation, we collected information from advertisements posted in
    the tax preparation offices we visited. Some of these advertisements
    gave sufficient information on APRs, finance charges, and other fees to
    determine how the preparer had arrived at its advertised APR, while
    others gave only limited information. The examples discussed below are
    based on two preparers whose calculations we were able to replicate.
    Tax preparers offering RALs are also required to provide a written
    disclosure, but because we did not complete the RAL application
    process, we did not receive written disclosures and were not able to
    evaluate the legal sufficiency of these statements under the Truth in
    Lending Act.

    We found that tax preparers did not use a consistent method to
    calculate the APRs presented in advertisements, and at least one
    preparer did not calculate its advertised APR according to Truth in
    Lending Act requirements. One preparer included all fees in its
    advertised APR, while another did not include an account fee, which
    substantially understates the actual APR for the RAL. The inclusion of
    these fees, known as account fees, standard fees, or handling fees, and
    which are charged to open a bank account into which IRS will eventually
    deposit the taxpayer's refund, is required by the Truth in Lending Act
    because consumers are required to pay the fee in connection with
    obtaining RALs and do not have the option of using existing accounts to
    obtain their tax refunds. Such fees can significantly affect the APR.
    For example, the APR on a $1,000 RAL at one tax preparer was
    represented in advertisements as 36 percent. However, when a $30
    account fee is included in the APR calculation in accordance with the
    act, the APR is actually 135 percent.[Footnote 14] The preparer
    included this fee in an advertisement showing the various fees and
    finance charges associated with a RAL, but noted in small print that
    the account fee is not actually included in the calculated APR shown in
    the advertisement. The advertisement's small print also notes that all
    published APRs are estimates. Since we did not actually file our tax
    returns, we did not obtain Truth in Lending written disclosures to
    verify whether the APRs in the required disclosures included all fees,
    in contrast to the APRs presented in the preparers' advertisements.
    Table 2 shows sample APRs from two of the preparers we visited that use
    different methods to calculate their advertised APRs.

    Table 2: Example of How Omission of Fees Affects APR Calculations:

    Amount of refund:
    Preparer 1, Advertised: $1,000;
    Preparer 1, GAO calculated: $1,000;
    Preparer 2, Advertised: $1,250;
    Preparer 2, GAO calculated: $1,250.

    Finance charge:
    Preparer 1, Advertised: $10.73;
    Preparer 1, GAO calculated: $10.73;
    Preparer 2, Advertised: $80;
    Preparer 2, GAO calculated: $80.

    Account fee:
    Preparer 1, Advertised: Not included in calculation;
    Preparer 1, GAO calculated: $30;
    Preparer 2, Advertised: None;
    Preparer 2, GAO calculated: None.

    Total fees used to find APR:
    Preparer 1, Advertised: $10.73;
    Preparer 1, GAO calculated: $40.68;
    Preparer 2, Advertised: $80;
    Preparer 2, GAO calculated: $80.

    APR: 35.6%:
    Preparer 1, Advertised: 35.6%;
    Preparer 1, GAO calculated: 135.0%;
    Preparer 2, Advertised: 212.4%;
    Preparer 2, GAO calculated: 212.4%.

    Sources: Tax preparers and GAO analysis.

    Note: According to GAO analysis, these preparers calculate the APR
    using a loan period of 11 days, and therefore we also used an 11-day
    loan period for our calculations.

    [End of table]

    We are sending a copy of this report to the Commissioner of IRS. In
    addition, this report will be available at no charge on our Web site at
    [hyperlink, http://www.gao.gov. If you or your staff have any questions
    about this report, please contact me at (202) 512-6722 or
    kutzg@gao.gov. Contact points for our Offices of Public Affairs and
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    Sincerely yours,

    Signed by:

    Gregory D. Kutz, Managing Director:
    Forensic Audits and Special Investigations:

    [End of section]

    Footnotes:

    [1] At the tax preparers we visited, we found APRs ranging from 36% to
    over 500%.

    [2] 73 Fed. Reg. 1131 (Jan. 7, 2008).

    [3] IRS estimates that $31.9 billion in EITC claims was paid to 19.3
    million taxpayers for the 1999 filing season.

    [4] In order to avoid electronically filing our returns, we paid cash
    for our paper tax returns. However, the tax preparers we visited
    automatically included tax preparation fees in the cost of the RAL,
    allowing customers to avoid paying cash up front for tax preparation.

    [5] Out of approximately140 million tax returns filed during this
    filing season.

    [6] See GAO, Tax Administration: Most Taxpayers Believe They Benefit
    from Paid Tax Preparers, but Oversight for IRS Is a Challenge, GAO-04-
    70 (Washington, D.C.: Oct. 31, 2003); and GAO, Paid Tax Preparers: Most
    Taypayers Believe They Benefit, but Some Are Poorly Served, GAO-03-610T
    (Washington, D.C.: April 1, 2003).

    [7] 15 U.S.C. � 1601 et seq.

    [8] 12 C.F.R. � 226.4.

    [9] This requirement is included in the official staff interpretation
    of the regulations; compliance with these interpretations affords a
    creditor relief from certain civil liabilities. 12 C.F.R. 226
    supplement I.

    [10] 12 C.F.R. � 226.17.

    [11] 12 C.F.R. � 226.18.

    [12] One tax preparer has a table of RAL fees and APRs posted on its
    Web site, but did not offer us written materials in the tax preparation
    office.

    [13] This requirement is included in the official staff interpretation
    of the regulations; compliance with these interpretations affords a
    creditor relief from certain civil liabilities. 12 C.F.R. 226
    supplement I.

    [14] This APR calculation includes all fees that apply only to RAL
    customers, such as finance charges on the RAL and any account fees. It
    does not include the tax preparation fees, which apply to all customers
    regardless of whether they obtain RALs.

    [End of section]

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