THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, February 7, 1995 TAG: 9502070274
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Medium: 73 lines
Millions of lower-income taxpayers may not be getting refunds from the Internal Revenue Service nearly as quickly as they expected.
Since late last week, the IRS has been withholding the Earned Income Tax Credit portion of refunds from between one-third and one-half of households applying for the credit, representatives of H&R Block Inc. and Jackson Hewitt Inc. said Monday.
The IRS is randomly delaying the refunds in order to get a closer look at the returns, tax services said. It wants to root out fraudulent claims for the tax credit.
But tax services said that only a small percentage of those seeking the credit, intended to help working families with children, commit fraud. They said the IRS's action will cause bill-paying problems for people who'd been expecting to get refunds back quickly.
It could take as much as eight weeks longer for people seeking the credit to get their money.
``We think it's a very unfortunate situation for these clients, who are basically the working poor,'' said Steven R. Dickey, chief operating officer for a 200-store H&R Block franchise that includes Hampton Roads.
Dickey said that H&R Block, the nation's largest tax service, first became aware last Wednesday that the IRS was holding back refunds on a higher-than-normal number of tax returns.
By Saturday, both H&R Block and Virginia Beach-based Jackson Hewitt, the second-largest U.S. tax service, overhauled their popular refund-anticipation loan programs in response to the IRS action.
Those loan programs allow people who file returns electronically to get refunds back within two days - minus fees charged by tax services and lending banks. That's a couple of weeks before the IRS normally releases the refund.
The banks had been willing to lend the money because they anticipated that the IRS later would clear the refunds. When the IRS did, the lenders simply kept the refunds for themselves. In fact, the refunds were electronically transferred straight from the IRS to the lending bank.
But last week, the banks started noticing many refunds coming in hundreds or thousands of dollars less than they'd already lent out to refund-anticipation loan applicants.
As soon as the banks figured out that the Earned Income Tax Credit was being withheld by the IRS, they told tax filers they'd no longer make any new loans covering the anticipated credit.
People who've already gotten the loans and had the tax-credit portion of their refund held up will have to pay back the difference when and if the IRS clears the full refund.
The IRS will mail the remaining amount by check to taxpayers' homes, probably within three to eight weeks but possibly longer, said Martha O'Gorman, a spokeswoman for Jackson Hewitt.
O'Gorman said that about half of her tax service's customers apply for the tax credit and that, of those, about half have had their credit held up since last week. She said the IRS appears to be randomly withholding the tax credits and complained that it's causing turmoil in Jackson Hewitt offices.
``We need to be able to know what to expect,'' she said.
Tom Zimmerman, executive vice president of the Kansas City, Mo.-based Block, said he didn't know what percentage of his tax service's customers seek the credit. But he estimated that about one-third of those who do apply for the credit now face delays.
People filing returns without the help of tax services are also affected, including those who are filing electronically or in paper form, Zimmerman said.
``You could be talking millions of people,'' he said. Prior to the tax season, he said the IRS advised tax services it was going to hold up a small percentage of returns seeking the Earned Income Tax Credit. ``But a third of the returns is not a small percentage.'' by CNB