River City Establishes Fee Forward: Tax Prep Advance

River City Bank (Louisville, Kentucky) will offer a new bank product to tax preparers for the upcoming tax season.

The new product, known as the Fee Forward, can advance the preparer fifty percent of the outstanding preparation fees charged to a filer.

Fee Forward is free to qualified preparers when used in conjunction with processing services. This year, River City will charge $30.95 to process a federal return and $9.95 for a state. There is an additional $1 fee for the FF service itself.

Here is a step-by-step explanation of the mechanics of the Fee Forward:

1. Preparer makes an application to RCB to participate in the Fee Forward program. RCB says that it will hold preparers to some standards.
2. If accepted, RCB advances a line of credit to the preparer at the beginning of the tax season.
3. Preparer completes a return for a filer. The return shows a refund for the filer. The filer signs a release which allows the IRS to send the refund to a temporary account at RCB in the filer’s name.
4. Preparer makes an application to RCB which indicates the price to be paid by the filer for tax preparation.
5. The preparer e-files to the IRS. The return includes RCB’s routing number and the filer’s social security number.
6. The IRS acknowledges both the receipt of the return and verifies that the return has been accepted. Those confirmations are sent both the preparer and to RCB.
7. The IRS administers the return.
8. The IRS sends the refund. The monies are sent to an account at RCB in the name of the filer.
9. Software fees are subtracted from the refund and sent to the software company used by the preparer.
10. Bank processing fees are subtracted from the refund and paid to RCB.
11. The remainder of the refund is designated for the filer and sent to the preparer.
12. The preparer takes out the tax preparation fees owed to the company by the filer.
13. The remainder is paid to the filer.

Some time ago, I wrote that the next iteration of the bank product would arrive before January 2013. We now have the first volley in a process that could include several rounds of innovations. RCB’s Fee Forward does not present a RAL II scenario, though. In fact, the filer may never even realize that such a process is occurring. As far as I can tell, this is mainly a means of bringing more preparers over to RCB’s processing business.