Seven Reasons Why the Bank Rejected Your Tax Refund Loan

by
Adam Rust

Because Your Debts Cancel out Your Refund

If you have federal student loans that are in default: Federal student loan debt is not dischargeable. You have to repay the government. The Department of the Treasury will ask the IRS to intercept your refund. Then, Treasury will apply the proceeds of your tax refund to making your student loan account current. The Treasury can take all of your tax refund. There is no level of protection that will shield those funds from their collection efforts. 

Outstanding child support: As is the case with filers with defaulted student loan debts, non-custodial parents with child support debts qualify for a federal tax refund offset. When your refund is processed, the IRS screens for past-due child support. If they find it, then all or part of your refund will be intercepted.

Outstanding unpaid taxes: You can only ignore the tax man for so long. You have to fill out a return every year – even if you do not owe anything. There are some special circumstances where a person without income might be excused from filing, but that is rare. The bottom line: you have to pay your taxes. You will not be allowed to get a refund until you can show that your accounts are up-to-date with the IRS.

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Because the Bank Believes You Present Too Much Risk

An unusual refund: Your refund this year is much larger than in prior years: The factors that drive the size of your refund usually do not change too much from year-to-year. The banks proceed carefully when a large refund is scheduled to be paid to a person who has received a small refund for many years prior. To that point, if your preparer says that he or she can boost the amount of your refund, you should be wary. Good tax prep is all about following the rules - not inventing falsified documents.

Someone has defrauded you: Many actors – all of them bad ones – steal Social Security numbers. One thing they like to do is to use that information to steal tax refunds. They try to keep the process as anonymous as possible, usually be coupling the theft of the SSN in parallel with taking out a prepaid debit card bank account in the same person’s name. In this event, you will be glad that the banks are turning down some applicants.

The bank may think you are attempting to commit tax fraud. The IRS has a “dirty dozen” list of the most common methods for perpetrating tax fraud. Here are a few: identity theft, impersonation of IRS agents, phishing, excessive business tax credit claims, padded deductions, abusive tax shelters, unqualified donations to charities, and offshore tax evasion.

You have exceptionally poor credit. The banks will not say “no” because you have a low credit score. For a lender to decide to reject a return owing to concerns with a filer’s credit, many alarms are going to have to start to ring. One bank says that they use more than one hundred data points in their loan review process.

The IRS is concerned about the preparer. Sometimes, it is not about you. It is about your preparer. It is the rare exception where your preparer is not working with your best interests in mind, but some do succumb to unscrupulous temptations.

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