This past tax season (Winter 2011/Spring 2012), First Nations Development Institute carried out a “mystery shopper” study of for-profit tax preparation businesses serving Native American taxpayers.  The study culminated in a report titled More Tax Time Troubles that identifies a number of issues encountered by Native American tax filers.  Unfortunately, First Nations discovered that high-cost loans against tax refunds are still being aggressively marketed.  Furthermore, some tax preparers manipulate taxpayers into signing up for costly bank products such as refund-anticipation checks in order to receive their tax returns.

The 10 mystery shopper visits were conducted between November 28, 2011 and April 17, 2012, in towns across New Mexico including Gallup, Espanola, Bernalillo, Farmington, Milan, Santa Fe and Albuquerque.  With support from the Annie E. Casey Foundation and the W.K. Kellogg Foundation, this study was conducted to assess the quality of paid tax-preparation services to document whether these companies were steering individuals toward expensive products such as refund anticipation loans (RALs) or refund anticipation checks (RACs).  This research builds on previous work conducted by First Nations that evaluated paid tax-preparation companies during the 2011 tax season.

The most troublesome finding was that some tax preparers use misinformation to manipulate clients into signing up for costly products like the RAC or RAL. Three of the 10 participants in our study were pushed to automatically sign up for a costly RAC to receive their refund. Tax preparers used several tactics to encourage people to use this product. In one case, the bank product was presented as the default option and the taxpayer was told he could not receive direct deposit into his bank account without paying a fee. In another case, a taxpayer was automatically rolled into a RAC product when her application for a RAL was denied.

Read the entire report in our Knowledge Center here.