One industry souce said it will be business as usual next season and that the cost of loans will simply go up."It will clearly result in higher-priced RALs, because the DI functions as an underwriting tool right now," he said. As to the use of direct deposit, he said, "about 90 percent of those who get RALs don't have accounts. This only penalizes people who desperately the money." Assuming loan fees do go up, that would counter the trend of the last two years for them to decline significantly.

The debt indicator helped lenders make a decision in making loans based on anticipated refunds since it showed whether taxpayers had outstanding debts, such as delinquent taxes, unpaid child support or federally funded student loans which would be offset against refunds. RACs are temporary bank accounts into which refunds can be directly deposited with payment made to the taxpayer. The IRS said it is exploring the possibility of a new tool for 2012.

The IRS is studying refund settlement products, such as  RALs and refund anticipation checks as part of the Return Preparer Review. For the 2012 tax filing season, it hopes to develop a tool that would enable taxpayers to utilize a portion of their refund to pay professional tax preparers.

The retail tax chains are expected to be hurt the most by the move. During the last season, Jackson Hewitt Tax Services saw a decline in revenue when it could get funding for only 50 percent of its loan business and customers went elsewhere. H&R Block, which has been under going a management turmoil following weak results for fiscal 2010, issued a prepared statement expressing its disappointment in the IRS move.

The reaction from the chains was predictable. A statement from Block CEO Alan Bennett said the company expects a drop of about 5 cents per share on its 2011 earnings from what it had previously forecast because of the move. Jackson Hewitt CEO Harry Buckley also voiced his disapproval but did not articulate any impact on the company's financial results. John Hewitt, CEO of Liberty Tax which had the best season among retail chains, called the move disappointing. Liberty Tax is privately owned.

Bob Scott

• Email

Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind