By Michelle Rupe Eubanks, Staff Writer
Published: Monday, January 19, 2009 at 3:30 a.m.
Last Modified: Sunday, January 18, 2009 at 9:25 p.m.
An estimated $133 million in earned income tax credit dollars went undistributed toAlabamafamilies who could use it most in 2008, according to the founder of ImpactAlabama: A Student Service Initiative.
By the numbers
The Brookings Institution, an independent policy and research institute based in Washington, D.C., compiled these estimates of earned income tax credit money that goes unreturned to eligible taxpayers in legislative districts in Colbert, Franklin and Lauderdale counties.
- House, District 1 (Rep. Tammy Irons): $1,062,413
- House, District 2 (Rep. Mike Curtis): $783,656
- House, District 3 (Rep. Marcel Black): $1,108,402
- House, District 18 (Rep. Johnny Mack Morrow): $1,094,333
Total: $4,048,804
Impact Alabama
Impact Alabama: A Student Initiative, which involves college students at several campuses in the state, is proposing a legislative bill requiring tax preparers to meet certain licensing and education standards.
The following are the components of the bill:
-Provide for the oversight of the commercial tax preparation industry through a state board.
-Require individual tax preparers to apply for an annually renewable license, fulfill a continuing education requirement and pass a proficiency exam.
-Expand informational outreach efforts to individuals eligible for the earned income tax credit.
-Use a portion of licensing fees to provide grant support to IRS-certified Volunteer Income Tax Assistance and nonprofit sites throughout the state.
-Require refund anticipation loan facilitators to provide written disclosures to clients when preparing refund anticipation loans.
Source: Impact Alabama: A Student Initiative
“It’s negligent, reckless and fraud,” said Stephen Black, who formed the student group that involves students from colleges and universities statewide. “The tax preparers who are doing this are defrauding the federal government and cheating these families out of this tax credit,” he added.
Black’s group has helped write legislation– the Alabama Taxpayer Protection and Assistance Act– that, if passed, could change the way taxes are prepared for low- to moderate-income families across the state.
The bill would require tax preparers to be certified and licensed as well as be involved in continued training. Black said the legislation, if passed, would help taxpayers who are eligible to receive earned income tax credit. The tax credit reduces personal tax liability, which would provide larger income tax return dollars for families.
Tammy Irons, D-Florence, is sponsoring the bill in the House. Quentin Ross, D-Montgomery, has agreed to sponsor the bill in the Senate. Irons said she plans to file the bill by the Feb. 2 opening of the legislative session.
In addition to requiring tax preparers to be licensed, the legislation would also require people who prepare taxes to disclose information about interest rates on refund anticipation loans. Some tax preparation companies offer a loan on the amount an individual is expected to receive from the federal government.
“The main reason I took on this bill is the issue of the number of low- to moderate-income families going to these individuals who don’t tell them they are getting a loan,” she said. “They are enticing these consumers to take out a loan against their income tax refund and once that’s in, they not only have to pay back the loan, they have to pay back the loan with as much as 800 percent interest. That’s just ridiculous this would be happening to Alabama citizens.”
Black has tackled other statewide initiatives. His group also started FocusFirst, which was established in 2004 as a cost-effective means to treat vision problems for school-age children who live in rural and urban parts ofAlabama. As with FocusFirst, Black is working with college students to research the tax preparation issue and get the message out about the legislation and how it can benefit taxpayers.
Kendra Key, a student at the University of Alabama and a volunteer with the Center for Ethics and Social Responsibility, a nonprofit organization working with Impact Alabama, said she’s seen this kind of predatory tax preparation take place first-hand.
“I volunteered as a tax preparer, and I know that it takes 30 minutes to do the work on these simple forms,” she said. “But these people are getting charged between $200 and $400 just to get the preparation done.”
Black said predatory practices are not limited to storefront operations run by individuals. Studies done by the General Accounting Office and the Internal Revenue Service revealed that national tax preparation agencies have also failed to inform clients of the earned income tax credit due to them.
“A preparer’s fee is often based on the amount of the return, so they don’t always say anything about the (earned income tax) credit, so they can jack up their price,” Black said. “Too often, the returns are filed with mistakes, and that causes these individuals to have to go through an audit, and, when that happens, the preparers are long gone, leaving the people who can least afford it to clean up the mess.”
Shirley Pigg, owner of Alabama Tax Service Inc., inFlorence, said she would be pleased to see the legislation passed. “It would be a great thing because it would weed out some of the bad tax preparers,” she said. “It’s my responsibility to tell clients what they can and can’t do. It’s my responsibility to tell them that, if they claim a dependent, the child has to live in the home at least six months a year. If they get audited, they have to prove this.”
Having the money back in the hands of consumers could also be a benefit to the struggling state and national economy, Irons said. “It would allow the individual to spend their (additional) return at retail outlets and at small businesses, which would keep those businesses running.”
Even if the bill passes, however, it won’t be effective until the 2010 tax season, giving the state and tax preparers an opportunity to get licensed and fulfill new requirements.
Already, California, Maryland and Oregon have passed similar legislation. InMaryland, there was opposition by lobbyists hired by the tax preparation industry who said the components of the bill were unfair. Irons said she doesn’t anticipate a negative response, but, until the bill is filed, it’s too soon to tell.
Michelle Rupe Eubanks can be reached at 740-5745 or michelle.eubanks@TimesDaily.com.
