With Tax Season in Full Swing, State Office of Consumer Affairs Warns Consumers of Tax Scams
OCA launches fake scam website to raise awareness
BOSTON – With tax season in full swing, the state Office of Consumer Affairs and Business Regulation today warned consumers to be wary of potential tax scams.
As part of its consumer education effort, the Office of Consumer Affairs (OCA) examined the fees associated with prepaid refund anticipation cards. Consumers can pay nearly $50 to set up the one-time-use account, according to tax service companies, and if filers put refund money on the prepaid card they could be charged a range of fees.
“Refund anticipation cards don't make a lot of financial sense,” said Undersecretary of Consumer Affairs and Business Regulation Barbara Anthony. "If consumers can wait for their refunds, we encourage them to, otherwise they are paying fees on their own money. Instead of being hit with fees to use the prepaid cards, consumers should open a low-cost bank account at one of our local Massachusetts banks or credit unions and arrange to have their refund directly deposited into it. Teens and seniors can get free checking accounts through the ‘18-65’ law at any state-chartered bank, and over 90 local banks have a low-fee basic checking accounts available.”
With a Refund Anticipation Check (RAC), a taxpayer is given a temporary bank account into which the financial institution associated with the tax preparation service directly deposits a refund check. Consumers can then access their refund money through a check or prepaid card. When the money is gone, the account closes automatically. This money does not come from the IRS.
OCA went to three major tax preparers’ Boston offices to examine fees associated with RACs. The information was collected in-person and online using each company’s marketing materials. OCA found that each service offered tax refunds on some form of prepaid card that was loaded with various use-related fees.
OCA found that H&R Block offers RACs on its Emerald Prepaid MasterCard. There is a $54.95 fee for a paper check or a $34.95 fee for direct deposit or prepaid card. The card has a $2.50 fee for each ATM withdrawal; a $25 fee to access the funds at a bank teller; a $4.95 fee to reload cash on the card at a retail location (not including independent fees by the retailer); a $2.50 monthly inactivity fee after three months of inactivity; and a $1 fee to check the card’s balance at an ATM. If the card is lost, there is a $35 expedited delivery fee for a replacement card.
Jackson Hewitt Tax Services stated that they do not offer RACs, but that refunds could be transferred to its smartcard upon credit approval. The Jackson Hewitt smartcard is a Visa prepaid card issued by MetaBank and is not connected to a checking account. The card has a $5.95 monthly fee; a $2.50 fee for ATM or over-the-counter withdrawals; and an undisclosed administrative fee. If the card is lost, there is a $55 express shipping fee for a replacement card.
Liberty Tax Service offers refund transfers onto its netSpend card for a one-time fee of $48.95. The card has a $1 signature purchase transaction fee; a $1 PIN purchase transaction fee; a $2.50 fee for ATM cash withdrawals; and a $5.95 monthly inactivity fee after three months of inactivity.
OCA also warns consumers to look out for deceptive and misleading tax service advertisements, which promise to reduce back taxes for cents on the dollar, no matter how much the taxpayer might owe. These companies claim that they can negotiate great deals on your behalf because of their special relationship with the IRS. Scammers may send a letter from an official-looking company, or an e-mail with a copied government logo. Consumers should be skeptical of these claims even if they seem legitimate. The IRS’ “Offer in Compromise” program is the only way for a consumer to settle tax debt for less than what is owed.
OCA also announced the launch of its newest fake scam website, Massachusetts Tax Prep, a tool provided by OCA to teach consumers about what to look for in scam websites. The website is designed to look like an unscrupulous service, advertising “new individual tax credits” and offering outrageous guarantees to help settle back taxes. However, once any of the site’s links are clicked, it redirects to an informational page that contains tips on spotting and avoiding similar tax preparation scams. The website includes resources to consult if a consumer has become a victim of a scam.
“Taxpayers should never allow their refund to be deposited into an account that is not in their own name,” said Undersecretary Anthony. “This is a red flag that you are dealing with a potentially fraudulent tax preparer.”
The Office issued a consumer advisory giving tips for choosing a tax preparation professional. The advisory encourages consumers to check the qualifications of a tax preparer, making sure that the individual has a Preparer Tax Identification Number as required by federal regulations. Consumers are advised to check the preparer’s history with the Better Business Bureau, the Massachusetts Board of Accountancy for Certified Public Accountants and the Massachusetts Bar Association.
The Division of Banks issued a release encouraging taxpayers to explore the benefits of the Federal Earned Income Tax Credit. In 2012 this tax credit helped more than 386,000 Massachusetts consumers save an average of $1,950 on their 2011 federal income tax returns. Massachusetts taxpayers who claim the credit on their state income tax return can also receive 15 percent of the computed federal credit.
The Office of Consumer Affairs and Business Regulation is committed to protecting consumers through consumer advocacy and education, and also works to ensure that the businesses its agencies regulate treat all Massachusetts consumers fairly. Follow the Office at its blog, on Facebook and Twitter, @Mass_Consumer.