TAP 05-041

Enforcement of RAL Requirements

Statement of Issue:

Providers of refund anticipation loans (RALs) do not always provide other than cursory information to taxpayers regarding the nature and risks of RALs, so many taxpayers, especially low-income and taxpayers with limited English proficiency who are claiming the Earned Income Tax Credit, are not aware that a RAL is a loan that carries substantial risks for taxpayers if they do not receive the refund they had anticipated and against which they have borrowed.

Proposal:

TAP recommended that the IRS increase the number of site visits and impose penalties on electronic return originators (EROs) with RAL disclosure requirements that are not in compliance. TAP recommended increasing the site visits, at minimum, to 3% for 2006 and 5% for 2007. Additionally, penalties should be imposed on identified EROs not in compliance, increasing the severity if there are multiple noncompliance issues in one site visit or repetitive instances of noncompliance over several site visits to the same location.

Response Notes: