State Attorney General Warns of Illinois Tax Scams

Inside Subprime: March 28, 2019

By Lindsay Frankel

Last week, Illinois Attorney General Kwame Raoul filed a complaint against two tax preparation firms for disreputable practices that led to monetary losses for their clients. The complaint highlights a scam with growing prevalence in which tax preparation companies take advantage of low-income taxpayers by attracting business with claims of steep returns and prizes. Meanwhile, these companies charge much higher fees than their competitors, and don’t deliver on their promises.

“People should be wary of tax preparers who offer ‘free’ incentives and promise big refunds, because these offers can ultimately lead to expensive, and in some cases, prohibited fees,” Raoul said in a statement.

According to the Attorney General’s Office, the two companies collected more than $1 million from clients unlawfully. Raoul asked the Cook County Circuit Court to mandate that the Georgia-based company cease operations temporarily to avoid harm to more taxpayers while the lawsuit continues.

The company promised to double prospective customers’ tax returns or provide free cash advances in exchange for a $350 fee. Instead, the company allegedly imposed undisclosed fees that it deducted from clients’ tax returns without informing them of the practice. In some cases, the fees consumed most of the client’s expected tax return.

Raoul also said the tax preparers had a “high number of errors in tax filings, inaccurate refund estimates, missed filing deadlines, and unauthorized submissions to the Internal Revenue Service (IRS).”

This might be due to the company’s recruitment of inexperienced tax preparers. The firms advertised high earning potential with “no experience needed” to prospective employees on Facebook, according to the complaint.

One customer in the complaint, Manuelita Martinez, was told she would be charged $350 and was also sold “audit protection” for $60. But one firm deducted $750 in fees from the return, and while the company claimed Martinez signed a disclosure, Martinez has no recollection of permitting the company to extract additional fees.

Since traditional lenders stopped offering high-interest refund anticipation loans, tax preparation companies have stepped in to take advantage of cash-strapped taxpayers, according to the National Consumer Law Center. The firms made offers of cash advances, though they rarely came to fruition.

The 2013 Illinois Tax Refund Loan Anticipation Act was created to protect consumers from short-term loan products that cut the amount received in a tax refund. These loans are typically pushed on low-income consumers who are desperate for funds, according to the Illinois Attorney General’s Office.

Dory Rand, president of the Woodstock Institute, a nonprofit that advocates for low-income consumers, says that taxpayers can usually access free services from local nonprofits when preparing their taxes, and warns against using refund anticipation loans.

“As often happens in the high-cost lending space, people keep coming up with ingenious ways to rip people off,” said Rand.

To file a complaint about unlawful activity from a tax preparer, consumers should contact the Illinois Attorney General’s Office.

For more information on subprime loans, see our city and state financial guides including Chicago , Peoria , Rockford and Springfield.