IRS Spokesman David Stell declared that the agency shall no longer release "debt indicators" of taxpayers to tax preparation services.
Debt indicators released by the IRS are those that indicate whether the taxpayer will receive any tax refund, and if that refund would be offset by payment of delinquent taxes, student loans or child support.
Tax preparers and payday loans companies use this information to process Refund Anticipation Loans (RAL) or (RAC) Refund Anticipation Checks.
The usual target market for the loans are taxpayers in the lower-income bracket. Tax preparers take advantage of these people's need to get hold of cash quickly to process such loans.
Both refund anticipation loans and refund anticipation checks are being used by taxpayers so that instead of having out-of-pocket payments, the tax preparation fees and products are paid for.
The target of such loans and checks are those who have no cash-at-hand to pay for services done for tax preparation.
However, according to IRS Commissioner Doug Shulman, the reason behind the non-release of debt indicators in the next tax filing season is that tax returns and refunds can now be processed in just 10 days.
Because the processing has become faster, taxpayers are instead encouraged to use 'direct-deposit' e-file since getting refunds is now just a matter of days. Any taxpayer has access to his own offsets and tax refund information online via the "Where's my Refund?" tool, available through the IRS.gov website.
The IRS will continue studying the issue of refund settlement products throughout the 2011 tax filing season for 2012.
The IRS is considering new methods for low income taxpayers to pay for professional tax preparation services.