Rapid Refund Has a Cousin

Rapid Refunds have been called many names such as Refund Anticipation Loan, RALS and now Tax Refund Advance. The Office of Comptroller of the Currency has blocked Hallmark, H&R Block, McAnnally & Company and HSBC from offering rapid refunds because the IRS was unable to determine if a tax filer was credit worthy to receive a rapid refund loan. In the past tax filers who owed taxes were still able to get a refund. The glitch was only found after the rapid refund was received by the tax filer. Chase (JP Chase Morgan) stopped offering rapid refunds in 2010.

In place of rapid refunds, H&R Block now offers RACs, Refund Anticipation Checks that provides tax filers with a refund checks in 8 to 15 days for refund amounts up to $9,999. You don’t pay any interest but the fee is deducted from your refund. You can get the money deposited in your bank account or have a check written in the refund amount. Getting a check will cost you an additional fee. Rapid refunds have very high interest rates starting around 40% up to 500% or more. Tax preparation companies don’t guarantee that you will get your money before the normal wait time from the IRS.

You can save yourself a fee by just being patient and waiting the normal wait time. Jackson Hewitt still offers rapid refunds for refund amounts up to $1,500. Liberty Tax still offers rapid refunds in additional to several accounting firms.

The IRS is taking steps to prevent more tax filers from using rapid refunds by processing tax returns quicker in real time so refunds can be received in 2 to 3 days starting next year. Here are 5 tips to get your tax refund faster and save money.

1. File early. If you expect to get a refund file your taxes as soon as you get your W-2. Early filers receive their refund quicker.
2. Assistance. Use a tax preparation software or get professional assistance from a licensed tax preparer or accountant to prepare your taxes to minimize getting audited or having errors on your tax returns. Many tax preparation software programs now guarantee that you will not be audited and that your tax returns are correct.
3. Direct Deposit. Have your tax refund deposited in your bank account to reduce processing time.
4. File Online. File your tax online by using a free tax preparation site with the IRS or a tax preparation software such as Turbo Tax or Tax Cut that can file your taxes electronically to reduce processing time. You can get your check within 14 days from the IRS or your local state taxing agency.
5. Deposit. Deposit your tax refund check into your bank account and skip using a check cashing store or liquor store to cash your check.

Rapid Refund - Good or Bad

A rapid refund or Refund Anticipation Loan (RAL) is money borrowed by a taxpayer from a lender or tax preparer agency based on the taxpayer’s anticipated tax refund. You are applying for a loan in exchange for getting your tax refund faster or borrowing against your own money for a fee. Rapid refunds are similar to payday loans. A RAL is advertised to taxpayers as the easiest and quickest way to get your tax refund.

You may get your tax refund faster if you file electronically which is much cheaper than getting a RAL. Many tax preparation companies market RAL's to taxpayers that qualify for the Earned Income Tax Credit (EITC) because the EITC ensures that an eligible taxpayer will receive a refund from the federal government.

H&R Block generated 2.9 million refund anticipation loans in 2009.

Rapid Refund agencies must:
1. Disclose that taxpayer is receiving a loan from the agency, and the taxpayer's IRS refund will be sent to the RAL or lending agency

2. Disclose that a RAL accumulates interest

3. Disclose all fees associated with filing a tax refund and for the RAL

4. Obtain a written consent, along with an application for the RAL

5. Disclose that if the tax refund is not received by the agency in a certain amount of time or by a specific date, the taxpayer may be charged additional fees

6. Refer to the RAL product as a loan and not a refund.

7. Not advertise that individual income tax returns may be filed electronically prior to the receipt of W-2 or 1099 Forms or that pay stubs can be used to file tax returns.


Here are 10 things to consider before applying for a rapid refund:
1. A rapid refund may require paying bank fees, loan fees, and a tax preparation fee

2. Ask for a disclosure of all fees you will be charged before signing the loan agreement

3. Beware of RAL scams

4. Find out if the company is licensed and qualified to prepare taxes

5. Ask how many customers have been audited

6. Ask what process is in place to help customers have been audited

7. If you feel you are being rushed or have a gut feeling that you should not get the RAL then walk away

8. Do you homework before going to get your taxes prepared

9. Be cautious about several deductions that you are eligible for that you never heard of. Ask them to write down all the deductions you are eligible for, find out if they are valid, then you can go back to the tax preparer office and proceed with filing the RAL

10. If you get audited, your rapid refund is denied and you will immediately have to pay back your tax refund or be charged interest and penalty fees by the IRS for the amount owed