On January 2nd, the Treasury Department and the IRS issued an Advance Notice of Proposed Rulemaking pertaining to stricter taxpayer privacy rules (IRS Code Section 7216). The proposed rules would prohibit the marketing of RALs and other products to taxpayers based on information from the taxpayer’s return, even if the taxpayer grants permission. If adopted, the new rules could effectively prevent tax preparers from providing RALs and similar products such as RACs and Audit Insurance to taxpayers.
In its proposal, the IRS said: "The Treasury Department and the IRS are concerned that RALs and certain other products may provide tax preparers with a financial incentive to take improper tax return positions in order to inappropriately inflate refund claims." IRS also said, "A preparer who inappropriately inflates the amount of a refund is able, directly or indirectly through arrangement with a RAL provider, to collect a higher fee.” IRS will accept comments on its proposed new rules through April 7, 2008.
The next day Jackson Hewitt’s stock price dropped by more than 23 percent and Block’s stock dropped by nearly 5%. Block subsequently issued statements indicating that they are not concerned and Jackson Hewitt issued a statement that it strongly believes that taxpayers should have the right to decide if they want to provide information to tax preparers and to purchase legitimate services and products.
Link to IRS News Release:
- What are the implications of this proposal for Tax Industry Participants?
- What ripple effects might occur for the tax industry, taxpayers and others if the RAL was suddenly killed by IRS?
- What alternatives to RALs might still be available to taxpayers?