The Internal Revenue Service has announced that it may attempt to stop tax preparers from offering refund loans and audit insurance because these products have encouraged tax-payer fraud.Under a plan if adopted by the IRS, it would prohibit companies such as H&R Block from passing along tax return information to lenders who provide the instant refunds and in some cases charge triple digit interest rates. Consumer groups and tax-payer advocates have urged the government to crack down on such practices.
The so called refund anticipation loans have been popular for cash strapped tax-payers that don't actually take into account all the fees and interest accessed to them. The National Consumer Law Center estimated that in 2006 that 12 million tax-payers took advantage of the refund anticipation loans paying more than $1 Billion Dollars in interest and fees.
Senator Chuck Schumer, D-NY applauded the move by the IRS saying, "...people all over the country are being ripped off by these so called refund loans and its time to stop them dead in their tracks."
The IRS will be soliciting public comment on the proposed new rule changes for 90 days before making a final decision, the earliest the new rules could take effect would be January 1, 2009
