IRS Debt Indicator: Does It Change Anything For You?

In August of 2010, the IRS issued a press release statement concerning the upcoming tax filing season and the issue of debt indicators involving refund anticipation loans. In short, the IRS commissioner stated that the current rapid method of e-filing, when used by taxpayers themselves or professional tax preparers, as well as well the rapid ability of the IRS to review a tax return and make refunds, essentially dictated that the IRS will no longer offer financial institutions and professional tax preparers a debt indicator.

What Is the Debt Indicator?

In the past, a debt indicator was used by financial institutions and tax preparers to issue RAL’s or refund anticipation loans. These loans are provided to taxpayers based on the anticipated amount of the taxpayer’s refund from the IRS. In the past, the debt indicator informed all parties, both the IRS, financial institution making the loan, and the tax preparer, of the existence of outstanding debt obligations, which would force a portion or all of the refund to go to payment of these debt obligations. Commonly, debt obligations such as child support amounts, student loans from a federally backed lender, and other liens would be subject to a debt indicator showing that repayment was owed and that the refund was subject to a lien. In short, the debt indicator allowed lenders to make informed decisions on whether a given refund would be subject to superior liens from the government.

What This Means for the Average Taxpayer?

In short, the change in the IRS Debt Indicator policy changes very little for taxpayers themselves, but does create changes affecting the tax preparers and financial institutions involved in refund anticipated loans. In essence, the average taxpayer can file a return and expect a payment of refund amounts owed in as little as ten (10) days in most cases anyways, without the use of a refund anticipated loan. The quick response method by the IRS, as well as the overwhelming percentage of filers using e-file, which is much more efficient for the IRS, essentially is phasing out the need for refund anticipated loans, as taxpayers can receive refunds directly from the IRS as quickly as they would in any other arrangement.

Getting Legal Help with IRS Debt Indicator and Other IRS Debt Issues

Before making any decisions regarding payment of IRS debts, or filing any tax return, a consumer will undoubtedly benefit from the insight of a taxation lawyer. If you are unsure about your current tax issues, or have further questions about dealing with the IRS in general, consult with a tax lawyer.