Low-Income Taxpayer Protection Act of 2004

LOW-INCOME TAXPAYER PROTECTION ACT OF 2004 -- (Extensions of Remarks - March 17, 2004)

SPEECH OF
HON. XAVIER BECERRA
OF CALIFORNIA
IN THE HOUSE OF REPRESENTATIVES
WEDNESDAY, MARCH 17, 2004

Mr. BECERRA. Mr. Speaker, today I am proud to introduce companion legislation to S. 685, a bill sponsored by Senator JEFF BINGAMAN (D-NM) and Senator DANIEL AKAKA (D-HI) to assist low-income taxpayers in preparing and filing their tax returns and to protect taxpayers from unscrupulous refund anticipation loan providers. In particular, the provisions of this legislation will benefit taxpayers eligible for the Earned Income Tax Credit (EITC) who must fill out dauntingly complex forms-the EITC instructions run 53 pages alone-and, because of the dearth of free tax preparation services to help navigate the process, are heavy users of commercial tax preparers.

The problems addressed by the Low-Income Taxpayer Protection Act of 2004 have been ignored for too long. The National Taxpayer Advocate's FY2002 Annual Report to Congress notes that in 2000, only 1 percent of filers with incomes below the EITC income limit received free tax preparation assistance from either the IRS Taxpayer Assistance Centers or volunteer sites affiliated with the IRS. The remaining low-income filers who had their forms filed for them used a commercial preparer. While many commercial preparers provide a very valuable, necessary service, the work of these men and women is too often overshadowed by those who peddle refund anticipation loans (RALs)--usurious short-term loans secured by the taxpayer's tax refund, including the EITC. In fact, it is estimated that 53 percent of EITC recipients who went to a paid tax preparer ended up with a RAL.

According to a report prepared by the Consumer Federation of America and the National Consumer Law Center and entitled "All Drain, No Gain," refund anticipation loan fees cost consumers about $1.14 billion in 2002, up almost $200 million from the year before. Additional fees for electronic filing, "document preparation," and "applications" added another $406 million to the total. Our constituents who can afford it the least are suffering a $1.5 billion drain on their tax refunds.

Mr. Speaker, let me take a moment to break down these estimates from the cumulative to the individual using an analysis found in "All Drain, No Gain." Based upon the prices for RALs in 2004, a consumer might pay the following in order to get a $2,100 RAL-the average refund-from a commercial tax preparation chain this year: (1) A loan fee of $99.95, which includes a $24.95 fee supposedly for the "dummy" bank account used to receive the consumer's tax refund from the IRS to repay the RAL; and (2) a system administration fee that averages $32 per loan. Combine that with tax preparation fees, which average about $120, and the total is about $250. The effective APR on this RAL would be 182 percent.

The Office of the Taxpayer Advocate acknowledges that there are several factors that drive low-income taxpayers to pay for tax preparation, including: (1) Inconvenient location or hours of VITA sites; (2) lack of bank accounts for direct deposit of refunds; (3) need or desire for immediate cash; and (4) inability to prepare one's own taxes due to limited language, literacy, or computer skills.

This bill takes a two-pronged approach aimed at curtailing the drain on the EITC program by first regulating income tax preparers and refund anticipation loan providers and, secondly, creating IRS-administered grant programs for free tax preparation for low-income taxpayers and to help individuals establish a bank account for the first time.

I encourage all of my colleagues to support this legislation.

END