DO PRODUCTS OFFERING EXPEDITED REFUNDS INCREASE INCOME TAX NONCOMPLIANCE?

An estimated 20 million individual income taxpayers utilize various types of bank products (Refund Anticipation Loans (RAL) and Refund Anticipation Checks/Cards (RAC)) to obtain their income tax refund. Use of an RAC could expedite refunds for taxpayers who do not have available bank accounts. Use of RALs and RACs may also lead to less compliant behavior on the part of taxpayers and perhaps the preparers who facilitate access to these bank products. This paper utilizes three separate data sets to test the hypothesis that income tax noncompliance is associated with individual taxpayer utilization of RALs and RACs. The paper's analysis indicates that noncompliance is higher among taxpayers using RALs. The paper takes this as an indicator that RALs provide increased benefits for these taxpayers and thus may encourage some taxpayers to become more noncompliant.