Refund Advance Checks (ACRs) are temporary bank accounts created by commercial tax preparers into which taxpayer refunds are deposited and from which tax preparer fees are paid. RACs allow a taxpayer to delay paying the tax preparer fees for a few weeks.

Typically, tax preparers charge between $ 25 and $ 40 for this service. While this may seem like a small amount to pay, the National Consumer Law Center (NCLC) points outthat a fee of $ 40 for delaying payment of a preparation fee of $ 300 represents an annual interest rate of 232%.

In the 2018 tax year, the Internal Revenue Service (IRS) reports 20.7 million taxpayers have used a RAC with nearly three-quarters, or 73.9%, of all RACs created for taxpayers with less than $ 50,000 in adjusted gross income (AGI). The geographic prevalence of RACs varies widely depending on the part of the country in which you live. The map below shows the highest concentration of RACs among the southern American counties and in scattered locations throughout the southwest and west.

Since most RACs are created for low and middle income taxpayers, it is not surprising that RACs tend to be concentrated in counties with higher levels of poverty, as shown in the table below. below. Additionally, however, the table also shows that counties with a higher percentage of RACs also have higher concentrations of non-white and Hispanic populations. (The US Census Bureau’s “Whites alone” category excludes individuals who identify as Hispanic whites.) This finding is further evidence that the tax code as it is currently administered works to the detriment of poor and minority taxpayers. It also shows that if the IRS wants to ensure that the tax code is administered fairly for all taxpayers, it should seriously consider collecting data on racial and ethnic origins taxpayers. This data could be collected in various ways without adding breed question tax forms.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Author Info

Kim Bloomquist, currently retired, previously worked as a Senior Economist in the IRS Research Office from 1999 to 2015 and as an Operations Research Analyst in the Taxpayer Advocate Service from 2015 to 2018 .

Bloomberg Tax Insights articles are written by seasoned practitioners, academics, and policy experts who discuss current tax developments and issues. To contribute, please contact us at [email protected].