Tax tips from our consumer watchdogs

Tax refunds are among the few things to look forward to when it comes to W-2 season. And in this tough economy, taxpayers may be tempted by promises to speed up the gratification with so-called instant “refund anticipation” loans.

But the Los Angeles County Department of Consumer Affairs has a message for anyone who might be considering such an offer:  Don’t.

“You don’t need to do it to get your money quickly,” says Acting Consumer Affairs Director Rigo Reyes. “And people typically end up paying very hefty fees they don’t need to pay.”

Such loans—usually billed by commercial tax preparers as “instant” or “rapid” refunds—typically offer consumers their refund money the moment their tax paperwork is finished. But Reyes says they are among the most common tax season consumer traps.

They’re actually short-term loans with massive interest rates—as high as 300 percent in some cases. They can not only substantially reduce a refund, but leave a taxpayer owing more money if it turns out that the preparer miscalculated the tax obligation. And with electronic filing, taxpayers don’t really need them.

“Yes, years ago, it did used to take a couple of months to get a refund,” says Reyes, “but today, you can ask for an electronic refund and get your money in less than two weeks.”

If you have questions about these loans, or have been taken advantage of and want to file a complaint, call the Department of Consumer Affairs at 800-593-8222 or click here.

By the way, that’s not all the advice the county’s consumer watchdogs have for taxpayers. Here, courtesy of Reyes’ team, are a few other tax-season tips (Spanish-speakers can click here, here and here):

Don’t buy into claims that you can get away without paying your taxes.

“Don’t believe someone who tells you that you don’t have to pay taxes because of some special law or constitutional loophole that only they know about,” Reyes says. The IRS has a list of frivolous anti-tax arguments that have already been tested in court and shot down. (“One year,” says Reyes, “it was a claim that if you were descended from slaves, you didn’t have to pay because the government owed you slave reparations.”) Taxpayers are free to contest their taxes in court, but tax evasion is a serious crime with serious penalties, says Reyes.

Don’t respond to unsolicited emails claiming to be from the IRS.

The IRS doesn’t request personal financial information via email. But phishers do, and then use it to commit identity theft. If you get a suspicious email purporting to be from the IRS, don’t reply, open any attachments or click on any links. Forward it as-is to [email protected] and, for more information, visit their identity protection page.

Vet your tax preparer.

Even if your best friends recommend a person, take the time to check him or her out. California law requires all tax preparers to register with the appropriate licensing agency. If your tax preparer is a lawyer, make sure he or she is legit at the State Bar of California. If you’re going with a certified public accountant, verify their license at the California Board of Accountancy. Any other kind of tax preparer must be bonded to protect clients against fraud and registered as an “enrolled agent” or a registered tax preparer (RTP) through the California Tax Education Council, where you can look up their status on this handy verification page. For enrolled agents, call the IRS office of Professional Responsibility at (313) 234-1280.

Consider doing it yourself this year.

If you don’t want to spend the money on a tax preparer, filing may not be as difficult as you remember. The state and federal government offer lots of free tax-preparation programs, and taxpayers can file their taxes online. The IRS’s Free File lets taxpayers file for free online and get a refund in 10 days. Low-income taxpayers can get free help through the IRS’s Volunteer Income Tax Assistance Program, which offers state and federal tax preparation help in several languages. To find a VITA site in Los Angeles County, call (800) 829-1040 or click here or here. There’s state and federal help for seniors, too, both through the IRS’s Tax Counseling for the Elderly Program and through the American Association of Retired People. For an IRS/Franchise Tax Board senior counseling site in Los Angeles County, call (800) 829-1040 or click here. For an AARP site, call (888) 227-7669 or click here.