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Aug 23rd

Predatory tax preparers scam working families

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The Earned Income Tax Credit (EITC) program, a national anti-poverty tax policy that rewards work and helps low-income families successfully remain in the workforce, has been eroded by predatory marketing practices of major tax preparation franchises in St. Paul. The Earned Income Tax Credit (EITC) program, a national anti-poverty tax policy that rewards work and helps low-income families successfully remain in the workforce, has been eroded by predatory marketing practices of major tax preparation franchises in St. Paul. Approximately $73 million was siphoned from Minnesota’s working families and economy into the hands of commercial tax preparers and their affiliated out-of-state national banks in 2001, according to a new report "Keeping What They’ve Earned: Working Minnesotans and Tax Credits," to be released January 9th by Children’s Defense Fund (CDF) Minnesota.

The money being swiped comes from the EITC. Of the estimated 211,000 Minnesotans who claim EITC, a large percentage never receive it. First, major franchise tax preparers target low-income taxpayers and charge relatively high eligibility fees, gaining access to their EITC. Then, the tax preparers persuade families to borrow against their anticipated income tax refund by promising "rapid refunds" and "instant money". The tax preparers’ main weapon is referred to as a Refund Anticipation Loan (RAL), which allows the families relatively immediate access to their EITC funds. However, the loans carry extremely high fees and interest rates, the average APR was 166% last year. By claiming their refunds through RALs, many families lose roughly ten percent of their EITC funds. "The costs of this disservice are alarming in two ways," said CDF Minnesota Research Director Beth Haney. "First, the funds being siphoned off are public funds that are intended to help low-income taxpayers provide for their families. Second, since working families spend the majority of their tax credit refunds on immediate, basic necessities, the money lost on high interest loans is not going into the local economy." While some of the diverted money goes to a small number of local tax preparers, a substantial percent ends up in out-of-state parent companies and partners. 2001 Tax Year at a Glance

o $1,130 - Average monthly earnings for Minnesotans who file for EITC

o $1,469 - Average EITC refund in Minnesota

o $175 - Average tax preparation and filing fee plus RAL cost as many as 1 in 2 in some neighborhoods

o $7.3 million - Sum of federal funds being diverted from working Minnesota’s families

Helpful Solutions:
Commercial tax preparers are highly visible in low-income neighborhoods where families have few choices for tax preparation assistance. However, some communities are fortunate to have access to sites providing low-income families and others with special needs with free tax preparation and e-filing services by community volunteers. The areas in Minnesota with high poverty rates especially need free tax assistance sites. Public, private, and local organizations, churches, unions, and community groups can make more sites available, increase sites’ hours of operation by recruiting and organizing more volunteers, donate computers, and organize outreach efforts to educate low-income families. To learn more, read the full report" Keeping What They’ve Earned Working Minnesotans and Tax Credits" at www.cdfmn.org/eitc.html. To find a free site near you, call First Call for Help at (800) 543-7709. To volunteer, go to www.cdf-mn.org and click on "volunteers needed now."
 

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