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One interesting sign at the Internal Revenue Service's Tax Forum this week in New York was at the booth of Tax Centers of America, which labelled the tax store franchising business as "Recession Proof." There were some other chains exhibiting that could have provided a different take on that. And all face  challenges from recent developments in the refund loan business.

The IRS has said it won't provide the debt indicator, which lets lenders know if a taxpayer who seeks a refund anticipation loan has any federal obligations that can be withheld. It lowers the risk of providing loans.

Without getting into arguments over the morality of RALs, it's clear the IRS action will produce higher bank fees by raising the lending risk. And Republic Bank, one of the few remaining funders almost immediately stated that it would raise fees. It seems likely others will do the same and that comes after fees had been declining.

River Valley Bank has been advertising that fees for a $1,000 RAL were $56 for tax year 2009 and would be $40 for tax year 2010. The $104 for a $3,000 loan would drop to $60 and fees would fall from $139 to $100 on a $7,000 loan. It's hard to believe those rates will stand.

But back to "Recession Proof". It's been well established that the number of 1040 returns filed has declined two straight years and that has hurt national chains H&R Block and Jackson Hewitt, which was also hurt by the exit of Santa Barbara Bank & Trust from the RAL business.

H&R Block reacted stating it expects earnings will drop by 5 cents per share during fiscal 2011 because of the RAL decision. Jackson Hewitt, the other publicly held tax franchisor, did not quantify its expectations. But it noted funds could be limited, a situation that has already hurt it. Privately held Liberty Tax had a much better year, but still saw reduced earnings.

So if the big chains are hurting what about the other franchisors and the independents? There already seem to be too many fish in the pond. And the IRS just erected a barrier to feeding them.


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