If the only two certainties in life are death and taxes, what about the death of the tax-refund anticipation loan?
The Internal Revenue Service is considering putting restrictions on this loan, a product that tax preparation specialists such as H&R Block
The convenience of receiving less money up front, rather than a full refund in weeks or months, has been a blessing for cash-strapped filers. But the IRS is concerned about possible fraud and a practice that lends itself to unreasonably high rates.
I can vouch for the fraud part. Someone stepped into an H&R Block office last February to file a bogus tax return in my name and a second one in my wife's name. Taking advantage of H&R Block's Instant Money service, they walked out of the office with hundreds of dollars on a pre-paid debit card from HSBC.
Even after clearing the matter, we were unable to file our legitimate taxes electronically last year and had to endure months of harassing phone calls from HSBC.
Identity theft cases like ours are rare, apparently. The real fraud typically occurs thanks to shady preparers who try to pump up fees by inflating expected returns.
There is also the matter of the high percentage rates -- on an annualized basis -- that creditors charge to take on the task of waiting for Uncle Sam to clear the tab. They're not as outrageous as rates from payday advance outfits such as Advance America
The news was enough to send Jackson Hewitt's shares free-falling 23% lower. H&R Block's stock took a mere 5% hit, but those shares have been battered badly enough to hit a fresh five-year low on the news. It's still not a done deal, and even if refund anticipation loans are restricted, the move won't take effect until next year at the earliest.
However, Jackson Hewitt's statement, issued after last night's close, addressed only the fact that IRS will spend the next three months accepting opinions on the matter before finalizing its decision for next year. Investors would have probably been more relieved to hear how Jackson Hewitt can thrive even if that revenue stream is cut off.
These are taxing times indeed for the tax preparers.
Jackson Hewitt is both a Hidden Gems Pay Dirt and an Inside Value recommendation. A 30-day trial subscription will set you running free with the value hounds. You can also visit our Tax Center for a jump-start on filing your 2007 return.
Longtime Fool contributor Rick Munarriz had no problem with refund anticipation loans until they were used as a fraudulent tool against him. He does not own shares in any company mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.