Tax refunds may not be so easy to get

If you like to file your income taxes early and get your refund as soon as you can — via what’s called a refund anticipation loan, offered by many tax preparation services — you might not find it quite so easy to do come January.

That’s because the IRS has informed tax preparers that it will no longer signal them on whether the whole amount of your refund will be issued. In the past, the IRS had been sending a computer code to preparers to clue them in that there were no liens on the refund, clearing the way for the preparer to cut you a loan check.

But that won’t happen for the 2010 returns, says the IRS. They could seize refunds for unpaid back taxes, defaulted student loans, child support arrears, or any number of other reasons. And if the tax preparer isn’t 100% sure the refund is coming in as advertised, they ain’t cutting you a check.

This has already sparked a law suit between H & R Block and HSBC bank, which processed the refund loans for them. HSBC has announced they are quitting the refund loan business because of the IRS decision. H & R Block in turn has sued them for breach of contract, because a substantial portion of their income comes from issuing these loans.

What has this to do with bankruptcy, you might ask? Well, refunds are one of the most popular sources for low and middle income people to fund their bankruptcy case; they use the checks to pay lawyers and filing fees so they can start they new year on a new note. If refunds are harder to come by, it may delay a fresh start through bankruptcy for some needy people.

On the other hand, many use their refunds to catch up on bills, too. These folks could actually be pushed toward bankruptcy quicker if they find out there is going to be a long wait for that annual tax refund income boost.

 

By Doug Beaton

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