Department of Consumer Affairs (DCA) Commissioner Lorelei Salas and New York City Taxpayer Advocate Eunkyong Choi today issued a warning to New Yorkers about predatory tax preparer tactics, in particular advertising for and selling “express refund advances” or “refund transfers.” The announcement was made at the Lower East Side People’s Federal Credit Union, which is one of the City’s NYC Free Tax Prep sites and also an NYC Financial Empowerment Center that provides free, one-on-one financial counseling.
Due to a new federal law, the PATH Act, the Internal Revenue Service (IRS) is now required to hold refunds until February 15, 2017 for filers who claim the Earned Income Tax Credit (EITC) or the Additional Children Tax Credit (ACTC). Most refunds will then be issued in approximately 21 days, which is almost three times as long as previous years. This is particularly troubling as those that claim EITC and ACTC are often low- to moderate-income working individuals and couples. A 2016 report by the Urban Institute concluded that this is the first time that delaying refunds for a specific group of filers has been used in an attempt to prevent errors and fraud. As a result, the delay will affect those who often rely on their annual refund to help make ends meet. There is consensus among researchers that this community of taxpayers is a significant consumer base for paid preparers and the delay could result an uptick in the use of refund products that force consumers to pay hundreds of dollars in unforeseen fees or interest.
“We are already seeing paid preparers who seem to be capitalizing on the delay in refunds by heavily promoting their refund advance products,” said DCA Commissioner Lorelei Salas. “New Yorkers need to be extremely wary of any promises to get their refund sooner—the IRS won’t accept returns until January 23 and can’t issue refunds until legally allowed. If you are promised otherwise, you may be getting less of the refund you deserve. If you earned $64,000 or less, don’t pay at all—file for free with NYC Free Tax Prep and get every penny of your refund as soon as possible under the new law.”
“With 2017 tax season officially underway, many tax preparers will lure New Yorkers with the promise of an immediate refund, only to be stuck with high fees and disappointment,” said Harlem Council Speaker Melissa Mark-Viverito
“With 2017 tax season officially underway, many tax preparers will lure New Yorkers with the promise of an immediate refund, only to be stuck with high fees and disappointment,” said Harlem Council Speaker Melissa Mark-Viverito. “New Yorkers should be aware of these unscrupulous methods and tax preparers should clearly state what’s entailed when offering these quick refunds. I want to thank the Department of Consumer Affairs for bringing to light these predatory tactics as people begin to look to file their taxes.”
“The delay in issuing refunds this year will cause financial hardships for many low-income taxpayers who often need to access their refunds to pay overdue bills and other debts,” said Eunkyong Choi, New York City’s Taxpayer Advocate. “Therefore, it is very important for taxpayers to file their returns as soon as possible. We are also advising New Yorkers to beware of tax preparers promoting no-fee Rapid Anticipated Loan and Refund Anticipation Check programs, as there are usually large and often hidden fees associated with them.”
“As tax season approaches, all New Yorkers should check to see if they’re eligible for free City-sponsored tax preparation services, and keep their guard up against ‘early refund’ deals that could cost them in the long-run,” said Manhattan Borough President Gale A. Brewer. “The Earned Income Tax Credit in particular can provide an incredible boost to low-income New Yorkers at tax time, but that’s undermined whenever a refund delay pushes more people toward the tax-season version of predatory payday lending. I thank the Department of Consumer Affairs for its ongoing work to safeguard and assist city taxpayers, and urge the Internal Revenue Service to avoid any unnecessary delays in disbursing New Yorkers’ refunds.”
“I urge my constituents, and all New Yorkers, to take every precaution to ensure that they are not being cheated out of the refunds or tax credits they deserve,” said Congresswoman Carolyn B. Maloney. “We should all be wary of using paid tax preparer services and early refund products. We are lucky to live in a city that provides its residents options to help save money during tax time, and I join DCA in encouraging New Yorkers making $64,000 or less per year to make use of the services provided by the City.”
“With tax season upon us, it is crucial that New Yorkers are aware of their rights and have access to vital information about all available resources to avoid scams and help them through the complex tax process,” said Council Member Rafael Espinal, Chair of the City Council Committee on Consumer Affairs. “This will help working- and middle-class New Yorkers, who depend on their tax returns to make major purchases, debt payments, or put food on the table in this ever-expensive city. I thank the Department of Consumer Affairs and Commissioner Salas for their efforts to raise awareness and provide free tax preparation services to New Yorkers.”
“Unfortunately, fraud is prevalent and never ending,” said Council Member Rosie Mendez. “Now, taxpayers utilizing EITC and ACTC are at risk. New Yorkers earning less than $64,000 who will file for these tax credits should come to the Lower East Side People’s Federal Credit Union or another approved NYC Free Tax Prep site to get help. Not only can you get your taxes done for free, you will also be assured not to be a victim of fraud.”
“As the tax season approaches, it’s important that New Yorkers have the information, support, and financial education to make sure they’re making the best financial decisions possible, including with tax refunds,” said State Senator Daniel Squadron. “I thank the Department of Consumer Affairs, the Lower East Side People’s Federal Credit Union, and my colleagues in government for helping spread the word on bad actors trying to make a quick buck.”
“The bad news is that the New Year brings new opportunities for unscrupulous tax preparers to use predatory and deceptive practices to bilk New Yorkers who may be eager to get their tax refunds,” said Assembly Member Brian Kavanagh. “The good news is that Commissioner Salas and Taxpayer Advocate Choi are beginning now to get the word out that people shouldn’t fall victim to these practices. And they’re continuing the great work of the City and numerous volunteer organizations providing free tax preparation services in our communities. I’m proud to join the effort to help ensure that my constituents and all New Yorkers have the services they need to file their taxes promptly and accurately and get the credits they deserve, and that the promise of a quick refund doesn’t become a trap.”
“The Lower East Side People’s Federal Credit Union has been offering free tax prep at our VITA sites for 15 years, as part of our mission to serve under banked, low income New Yorkers, while protecting them from predatory lenders. We are concerned that the delay in tax refunds will hurt those who rely on these refunds the most, and drive them to costly and exploitive loans. In addition to free tax filings, we will also work with those who need their funds quickly to find a fair and affordable way to assist them,” said Linda Levy, CEO of the Lower East Side People’s Federal Credit Union/PCEI, Inc.
“Grow Brooklyn is very enthusiastic to partner with the DCA and the Lower East Side People’s FCU on NYC Free Tax Prep. The income tax refund is often the single largest financial boost that low- to middle-income families receive in a year, amounting to 20 percent of their annual income. We are excited to partner with the City of New York and Lower East Side People’s FCU during this tax season. Their tremendous support in helping New Yorkers keep their whole refund is vital. In the Lower East Side, and in our eight Brooklyn locations, Grow Brooklyn works hard to combat the influence of predatory tax preparers, and will continue to provide the highest quality service for free,” said Samira Rajan, Executive Director of Grow Brooklyn, Inc.
“We all share in the responsibility to help consumers reduce their risk of falling victim to tax identity fraud, while simultaneously working to empower them with the information necessary to navigate this year’s tax refund delay,” saidJohn Breyault, Vice President of Public Policy and Telecommunications Fraud at the National Consumers League. “Considering that 99 percent of consumers are still unaware of the impending refund delay, awareness efforts like those being run by the Department of Consumer Affairs could not be more important. Their effort to connect consumers with free tax preparation services provided by organizations like the Food Bank of New York City benefit consumers greatly, by helping individuals avoid the costly short-term refund advances that prey on vulnerable consumers.”
“For hard-working New Yorkers struggling to make ends meet for their families, receiving the full potential of a tax refund is crucial,” said Haidee Cabusora, Chief Program Officer for The Financial Clinic. “The Financial Clinic is proud to offer one of the largest VITA programs in New York City, offering free tax preparation to thousands of families each year with sites in Manhattan, Brooklyn and Queens. Many of these families are eligible for the Earned Income Tax Credit, receiving on average more than $2,000, and now more than ever, we seek to ensure they receive the full amount they deserve. In addition, our financial coaches and tax preparers help low-income New Yorkers maximize their savings at tax time by navigating available resources such as myRA retirement accounts and 529 college savings accounts.”
“Low-income families tend to file tax returns very early in the filing season and have grown accustomed to receiving their tax refunds quickly. Among certain low-income tax filing groups, our research found that nearly four in five families with children who claimed the earned income tax credit or child tax credit reported financial hardships at the time of tax filing. Delaying refunds could exacerbate an already difficult financial situation for some families,” said Elaine Maag, Senior Researcher at the Urban Institute. “In addition, although workers without custodial children receive just three percent of EITC benefits, they account for 25 percent of all EITC recipients. Their entire refund – not just the portion attributed to the EITC – will be delayed as a result of changes in Washington; this may come as a big surprise for this group of people.”
“For many low-wage working families in our city, the Earned Income Tax Credit represents the single biggest opportunity in the year to get caught up on bills, put good food on the table and set money aside for a rainy day,” said Triada Stampas, Vice President for Research and Public Affairs, Food Bank For New York City. “Any promise of a fast refund takes money out of the pockets of those who can least afford it. We join Commissioner Salas and our partners in the NYC Free Tax Prep Program to encourage eligible New Yorkers to file their taxes instead at our city’s many free tax sites. Food Bank For New York City has been a proud provider of free tax assistance services to low- and moderate-income New Yorkers since 2002 to help ensure that eligible New Yorkers get every penny of the federal refunds and credits to which they are entitled.”
“Tax time is often a tough time for consumers,” said Chi Chi Wu, Staff Attorney at the National Consumer Law Center. “The PATH Act delay and financial products of varying cost will make it even more confusing and tricky. The safest and lowest cost option for low-and-moderate income taxpayers is to use a free tax preparation program.”
“Our Financial Counselors meet with hard working New Yorkers every day, many of whom struggle to set aside even a few hundred dollars in savings,” said Eric Espinoza, Neighborhood Trust Financial Partners Associate Director of Programs. “Additionally, clients are sometimes particularly pressed for cash at the beginning of the year because the holidays can be very demanding on their finances. This puts many New Yorkers in a position where they are anxiously awaiting their tax refund to provide them with some much needed financial relief. Despite the urgency that they might be feeling, it is incredibly important for New Yorkers to maximize their hard-earned refund by avoiding predatory products and paid tax preparers whenever possible! Instead, New Yorkers can save this money, receive advice from a Financial Counselor for free by dialing 311, and be on their way towards setting and accomplishing their financial goals!”
The two most common types of refund products—Refund Anticipation Loans (RALs) and Refund Anticipation Checks (RACs)—have changed greatly since coming into prominence in the early 2000’s. RALs, or “express refund advances,” previously had steep fees and interest rates in order to receive the full estimated refund amount. However. they are now advertised as “interest free” and typically offer a portion of a filer’s expected refund. Although RALs now don’t include fees or interest, unscrupulous preparers sometimes charge borrowers higher fees.
In the case of RACs, or “refund transfers,” consumers opt to have their tax preparation fees deducted directly from their refund for an additional fee. Depending on the product, paid preparers may help the filer open of a temporary bank account, which subjects the consumer to transfer fees and other product costs that add up. A March 2016 National Consumer Law Center report noted that RACs generally cost $25 to $60 for the federal refund. Although RACs are not typically considered loans, it should be noted that if a taxpayer pays $35 to defer payment of a $350 tax preparation fee for three weeks, the interest rate would be equivalent to 174 percent.
Although a consumer’s experience is slightly different depending on the type of product they use, at the end of the day, the results are the same: consumers have less of their hard-earned refund in their pocket and pay more to get their refund. DCA has received reports of fees as high as $750. Consumers should ask the preparer for a Consumers’ Bill of Rights Regarding Tax Preparers (also available in Arabic, Bengali, Chinese, Haitian Creole, Korean, Russian and Spanish) and read it thoroughly before having their taxes prepared. Also, be on alert for preparers that overcharge, charge hidden fees, or file your return without permission. Consumers can file a complaint about tax preparers with DCA by calling 311 or visiting nyc.gov/dca.
Commissioner Salas also encouraged New Yorkers who earned $64,000 or less to take advantage of the City’s free tax preparation services, which will be available at approximately 200 sites across the five boroughs starting in mid-January. Services provided by NYC Free Tax Prep include free, in-person preparation at hundreds of Volunteer Income Tax Assistance (VITA) and AARP Tax-Aide sites and “drop-off” services where an IRS certified VITA/TCE volunteer preparer completes the return offsite, as well as online preparation, accessible through DCA’s website. Check nyc.gov/taxprep or contact 311 for updated information in the coming weeks.
The City’s Annual Tax Season Initiative increases awareness about tax credits that put money back into the pockets of working New Yorkers, and helps qualifying New Yorkers file their taxes for free. EITC, considered one of the most effective poverty reduction programs in the United States, is a combination of federal, state and New York City refundable tax credits for qualifying families, non-custodial parents (NYS EITC only), and singles who work full time or part time, or who are self-employed. For working families in New York City, federal EITC claims average $2,400 and can be worth as much as $8,463, when combined with state and City credits.
Last year, as part of the City’s annual tax preparer inspections, DCA conducted more than 876 inspections citywide and issued violations to two in four income tax preparers inspected. Top violations included failing to post prices for their services, misrepresenting their qualifications and violating other consumer rights. Every year, DCA inspects income tax preparers who were issued violations the previous tax season, as well as those located in neighborhoods with immigrant communities. Last year, DCA focused its efforts on bad actors including those with previous violations and those who received consumer complaints. DCA received 222 complaints about tax preparers last year, with overcharging as the top complaint. During inspections, DCA found that many tax preparers do not post their fees as required by law, nor do they provide consumers with an itemized receipt or statement of charges, making it easier for them to overcharge consumers.
In New York City, tax preparers must post their tax preparation services and fees, provide consumers with an itemized receipt or statement listing the individual cost of each service and form prepared, as well as a receipt with the address and phone number where the tax preparer may be contacted throughout the year. Consumers have the right to receive a written estimate of the total cost for all charges related to each service offered by the tax preparer. It is illegal for tax preparers to charge a fee based on the amount of tax owed or refund due, guarantee a specific refund amount, or have a filer’s tax refund mailed to the tax preparer, unless the filer has signed an authorization.
For more information about DCA and its work, call 311 or visit DCA at nyc.gov/dca.