From the U.S. Government Accountability Office, www.gao.gov Transcript for: Tax Refund Products Description: We discuss a GAO review of the tax-related products Americans purchase. Related GAO Work: GAO-19-269: Tax Refund Products: Product Mix Has Evolved and IRS Should Improve Data Quality Released: April 2019 [ Background Music ] [ Mike Clements: ] Our work suggests that IRS should take steps to ensure that policy makers have complete and accurate information to make decisions on these products. [ Matt Oldham: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. I'm Matt Oldham. Americans spent more than $500 million on tax-related products in 2017. This includes services to help prepare and file taxes, and refund loans. I'm with Mike Clements, a Financial Markets and Community Investment director at GAO, and he led a report reviewing those tax time products. Thank you for joining me, Mike. [ Mike Clements: ] Matt, great to be here. [ Matt Oldham: ] So what exactly are Americans spending more than half a billion dollars on? [ Mike Clements: ] Taxpayers receive a few benefits with tax time financial products. First, the taxpayer can defer payment of their tax preparation fees with these products. In a typical scenario, the taxpayer is going to need to pay their tax preparation fee at the time they file their taxes. However, with a refund transfer, the taxpayer can in fact pay their tax preparation fee out of their tax refund when that's actually paid, thus they’ve deferred payment of their tax preparation fee. Taxpayers can receive cash quicker with a tax time financial product. With a product called a refund advance, they in fact can get their cash within 24 hours. Now it's important to note, the IRS isn't processing their return any faster. In fact, what this is, it's a loan secured by the refund. Taxpayers also typically would get a refund advance combined with a refund transfer when they do that. Now you mentioned the $500 million. There are fees associated with these products. In the case of the refund transfer, the taxpayer's going to pay $40 to $50 for that. The refund advance is a no-fee product. However, as I mentioned, it's typically combined with the refund transfer. [ Matt Oldham: ] So did your review find trends in who uses these products? [ Mike Clements: ] We found that low-income households are more likely to use these products than high-income households, and that's especially the case for households that receive the earned income tax credit. For many of these households, the tax refund is often times the largest single cash influx that they're going to receive, and thus if we think of the benefits such as deferring the payment of the tax preparation fees, getting that cash quicker, that's really important for these type of households. Secondly, we found that minority households are more likely to use tax-time financial products. For example, African-American households were 36 percent more likely to use tax time financial products that White households. [ Matt Oldham: ] So where do you get this information from? [ Mike Clements: ] The information is a combination of information from the Internal Revenue Service and the Federal Deposit Insurance Corporation. [ Matt Oldham: ] And did you get a sense that the information is up to date and comprehensive? [ Mike Clements: ] We've had a couple of problems with the IRS's data. First off, for data in the 2016 to 2017 timeframe, IRS did not provide an indicator for the refund advance. The second thing we found was since 2016, that IRS is likely under reporting the extent of refund transfers, and this is because the refund transfer is often linked to a refund advance, and under the IRS's current process, the tax preparer can only select one type of product, and therefore they would likely select the refund advance, thereby undercounting refund transfers. [ Background Music ] [ Matt Oldham: ] So it sounds like we have some idea of who is most likely to use these tax time financial products, but the IRS isn't keeping an accurate count of some of the information related to these products. Mike, why is it important for the government to have better data on this stuff? [ Mike Clements: ] These data are used by policymakers in Congress, the National Taxpayer Advocate, and also regulators, and it can help inform policy decisions, such as regulatory oversight, but the ability to have the data to understand the extent to which these different products are provided is important in that context. [ Matt Oldham: ] So did your team have any recommendations for the IRS going forward? [ Mike Clements: ] First off, we recommended IRS attach explanatory material to its dataset to clarify that refund advances and refund anticipation loans may be aggregated for that 2016-2017 data set. And second, we recommended the IRS allow tax preparers to select multiple product offers, or provide additional instructions for tax preparers to clarify this issue that consumers can get multiple products to refund advance and refund transfer. [ Matt Oldham: ] So what do you believe is the bottom line of this report? [ Mike Clements: ] Over 20 million American taxpayers avail themselves to these products, and they provide real benefits for certain taxpayers. However, there are fees associated with these products, and there have been concerns raised about the disclosure of those fees when consumers are acquiring the services. Our work suggests the IRS should take steps to ensure that policymakers, regulators have the complete and accurate information to make decisions on these products. [ Background Music ] [ Matt Oldham: ] Mike Clements is a Financial Markets and Community Investment director at GAO, and he was talking about his report reviewing Americans' use of tax-related financial products. Thank you for your time, Mike. [ Mike Clements: ] Matt,it was my pleasure. [ Matt Oldham: ] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at gao.gov. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at gao.gov.