IRS Debt Indicator Decision

Another significant change for the upcoming tax season was announced by the IRS just a few days ago.  Banks and professional tax preparers who offer Refund Anticipation Loans (RALs) and Refund Anticipation Checks (RACs) will no longer have access to a tool called the debt indicator, which the IRS describes as “an indication of whether an individual taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent federally funded student loans” (

IRS Commissioner Doug Shulman commented on the decision to remove the debt indicator by explaining: “We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days.  We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”  Refund Anticipation Loans and Checks are often targeted at lower-income citizens, who may not always have enough out-of-pocket money to pay for tax preparation services.  Many people are happy with the decision, which they hope will put an end to inflated interest rates on RALs and RACs; recent studies have found that some lenders charge fees equivalent to between 50 and 500 percent APR (

However, not having access to the debt indicator will not only make it more difficult for banks and other lenders to issue Refund Anticipation Loans, but the decision may also affect the ability of professional tax preparers to offer some products and services at affordable prices.  Additionally, the choices available to consumers may become more restricted: the amount of credit available to them will likely be more limited, and such services will very likely end up costing more than they have in the past.

While IRS Commissioner Shulman pointed out the quick turnaround of tax refunds in past years, some taxpayers may need access to their tax refunds sooner than 10 days after filing.  Many lower-income citizens may not have access to the e-filing option, and some may not have a bank account available for direct deposit.  Additionally, CPA Leigh Mutert points out another potential negative consequence of the decision to remove the debt indicator: “Without access to the debt indicator, a taxpayer may not know they have outstanding federal debt that will decrease their tax refund. They only become aware when they receive a smaller-than-expected refund.”

If you have an opinion on this decision, you can contact your Local Taxpayer Advocate by visiting the following link:,,id=97402,00.html

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