By M.J. Ellington
Staff Writer
January 11, 2009
MONTGOMERY — The scenario is one that will occur thousands of times in the next few weeks as taxpayers prepare to file income tax returns.
A cash-strapped parent will step into a business that advertises rapid delivery of income tax refunds and will sign paperwork giving the firm permission to file his tax forms.
The taxpayer walks out with an early refund or else gets refund money in a matter of hours, not weeks.
“They are told their options are to file a paper tax return and wait weeks for the refund or to take out a refund anticipation loan that gets them the refund sooner,” said Stephen Black. He is director of the Center for Ethics and Social Responsibility at The University of Alabama.
Black said taxpayers often do not understand that when they sign paperwork to get early refunds, they also take out a loan allowing them to get the money early. “The interest may run as high as 700 to 800 percent,” he said.
Taxpayers also may not know they can file returns directly with the Internal Revenue Service and usually receive refunds within a few days, he said.
Creating standards
Black wants legislation in 2009 to require certification, oversight and minimum qualifications for businesses that prepare individual tax returns. Alabamadoes not regulate tax preparation businesses.
The bill would exempt attorneys, certified public accountants and others in professions that already set such standards, Black said.
Legislators who agreed to sponsor the bill are Rep. Tammy Irons, D-Florence, and Sen. Quinton Ross, D-Montgomery.
Co-sponsors are Rep. Cam Ward, R-Alabaster, and Sen. Steve French, R-Birmingham.
Black said his interest in the legislation stemmed from research he did in setting up SaveFirst, a grant program that provides free tax return preparation and consultation.
SaveFirst trains college and law-school students in how to prepare simple tax returns and provides them with information on applying for earned-income tax credit.
The students and their supervisors hold tax preparation clinics in different cities during tax season.
Students from Calhoun Community CollegeandAthensStateUniversityare involved in the SaveFirst clinics that begin Jan. 21 inDecatur, Black said.
SaveFirst targets Alabama taxpayers whose income level qualifies them for the federal earned-income tax credit.
More can benefit
The credit helps reduce taxes for families with incomes under $41,000 per year or individuals with incomes under $20,000 per year. But they must apply to receive the credit.
Black said about 75 percent of the 491,000 Alabamians who qualify for the earned-income tax credit pay a commercial preparer $200 to $300 to do a simple tax return.
He said the preparation fee is high for people with little income and a lack of understanding about the different ways they can file for tax refunds. The state’s percentage of low-income people using rapid refund services is the second highest in the country, Black said.
Alabamians qualify for a total of more than $1 billion per year in earned‐income tax credits, but about 11 percent, or 49,000, of eligible Alabamians do not apply for the tax credit, Black said.
He said many are single mothers with three or more children.
“They think it does not apply to them because the government uses as examples people who have one or two children,” he said.
Protecting the public
Ross called the bill good consumer protection.
“People don’t realize when they get these done in these rapid refund places that they are taking out a loan,” Ross said.
Ross called the bill’s licensing and oversight provisions a way to legitimize credentials of those who operate tax preparation businesses as well as a way to protect consumers.
This is the second year for SaveFirst, Black said. MostUniversityofAlabamastudents take a course that includes volunteering as a component.
Unique business model
Black said while his Impact foundation employs 12 full-time staff members, it operates on a shoestring staff budget.
“All but two of them have salaries of $10,000 per year, but they are recent graduates who want to have a time of service before they go into the regular work force,” he said.
He called it a “wonderful business model that combines volunteering with student service.”
In 2008, 250 students helped 1,400 families with tax preparation, he said. The goal for 2009 is 4,000 families.
“Even if we meet goal, it is only 1 percent of the eligible families,” Black said. “We want to do a lot more.”
Tax prep help starts in Decatur
SaveFirst, aUniversityofAlabamagrant program, will offer free income tax preparation and advice for people in theDecaturarea who qualify for the earned-income tax credit. Students from the university andCalhounCommunity Collegewill staff the tax preparation clinic.
The clinics begin Jan. 21. Hours will be 9 a.m. to 7 p.m. Wednesdays and 9 a.m. to 3 p.m. Saturdays through Feb. 28.
The location is Community Action Partnership of North Alabama,1909 Central Parkway S.W.
Interested taxpayers must have an appointment.
Eligible taxpayers are from families with children that earn less than $42,000 per year and individuals with income below $20,000 per year.
Schedule an appointment by calling 888-998-2925.
