The news that customers will be able to get free tax preparation service has prompted an intense and varied reaction among consumer advocates.
It is the variation in those reactions, from groups that often speak in lockstep with eachother, that seems so unusual. Some groups appear to acknowledge the value of this opportunity. Some are skeptical, perhaps because of general distrust on their part for anything Wal-Mart.
Jackie Lynn Coleman, executive director of the National Community Tax Coalition, sees some positive opportunity, albeit with some qualifications. She praised Wal-Mart for its efforts to offer low-cost check cashing services, saying its fees were reasonable compared with other check cashers.
Coleman pointed out, however, that 77 percent of filers who claim the earned income tax credit are not eligible to use the Form 1040EZ and thus would be subject to preparation fees. She encouraged low-income taxpayers to visit free community tax preparation programs for help with their tax returns, saying they will not be subjected to any fees for return preparation and they have an opportunity to open a bank account for direct deposit.
On the other hand, the New America Foundation seems to be entirely skeptical. David Rothstein wrote on The Ladder, a blog at New America, goes so far as to wonder if the program should really be characterized as deceptive: ” The truth is that the the ‘free’ program offered in Block and Jackson Hewitt stores, now with kiosks inside Wal-Mart, is more of a ploy to get customers in the door than to offer them free assistance.”
The rub is that the offer is only for 1040 EZ returns. H&R Block says that the 1040 EZ constitutes only about sixteen percent of all returns.
Is it possible that some people might opt for the 1040 EZ when they could take a deduction if they filled out another form. Yes, but it seems unlikely. The for-profit preparers would be foolish to steer people to a free return and they will certainly go to length to explain why a more complicated return could be far more beneficial.
No, the real concern is that the non-free returns will become a choice of convenience for filers that might otherwise use a VITA site. Coleman and Rothstein would agree that filers need and deserve the best deal possible. VITA beats the Wal-Mart deal for anyone. Rothstein emphasizes that this is true even for someone that is filing a 1040 EZ, because he says that those filers will still have to pay for state and local tax forms.
Direct deposit is free everywhere, but there is still the possibility that people at these stores will seek to get a financial product. Jackson Hewitt is going to have RALs and they are going to sell them in Wal-Mart. Block won’t have a RAL, but they will still have a RAC product.