Huge increase in refund anticipation loans in 2008
Millions of taxpayers borrow against all or part of their expected refunds using a Refund Anticipation Loan, which is a short-term loan based on a taxpayer's expected income tax refund minus fees, preparation, finance, and filing charges, and is a contract between the taxpayer and a lender. Once the IRS processes the return, the amount of the actual refund is transferred to the bank or lender. The IRS is not involved in the contract, cannot grant or deny the loan, and cannot answer any questions about it.
In January, the Treasury Department and the IRS requested public comment  on their concern that RALs and similar products may provide preparers with a financial incentive to take improper tax return positions in order to inflate refund claims inappropriately. In their Advance Notice of Proposed Rulemaking (ANPRM) the agencies said they are considering a proposal that tax return preparers be prohibited from disclosing or using taxpayer return information for the purpose of selling products such as RALs and similar products. The 90-day comment period ended April 7, 2008.
David Williams, IRS director of electronic tax administration and refundable credits, told the Albany Business Review that the IRS wanted to know whether it should propose new tax regulations prohibiting tax preparers from sending client information to banks that provide the loans. He said this wouldn't prevent clients from taking their information directly to a bank or other entity that could grant a refund anticipation loan.
The IRS is also conducting an audit in 2008 to determine the effects that Refund Anticipation Loans have on taxpayers and tax administration. The agency will report the final results in August 2008.