Members of the commission, thank you for the opportunity to address you on our role in the Internal Revenue Service electronic filing program. I represent BANC ONE CORPORATION which has assets of $101.8 billion and common equity of $8.4 billion at December 31, 1996. BANC ONE now operates 1,502 offices in Arizona, Colorado, Illinois, Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West Virginia and Wisconsin. BANC ONE also owns several additional corporations that engage in credit card and merchant processing, consumer finance, mortgage banking, insurance, venture capital, investment and merchant banking, trust, brokerage, investment management, equipment leasing and data processing.
The advent of electronic filing enabled the banking industry to legitimize a market that for many years was served principally by fringe interests who discounted refunds for as much as fifty cents on the dollar. There are two principal forces in this market:
· The need to buy the service of tax preparation without having accumulated "up front" money to pay for the service.
· The immediate need for the cash involved in the excess withholding that represents the refund on a tax return.
Incidentally, these forces are well documented in a scholarly work Fringe Banking written by John P. Caskey.
The banking industry typically offers two services to this market. We offer the services through the affiliation of some 7,200 independent tax preparers who do the actual tax preparation. Because I am specifically familiar with Bank Oneís products, I will address them by our trade names. The first service is called a Bonu$ account. This service is a series of electronic transfers of data and money between the taxpayer, the bank, and the Internal Revenue Service. This service enables the taxpayer to:
· Receive assurance that their return was filed and filed accurately.
· Have their tax return prepared professionally without "up front" money, the bank collects and pays preparer fees.
· Receive their money in 10-12 days rather than 3 to 8 weeks.
· Receive their money in hand at their local tax preparerís office rather than risk their check being lost or stolen in the mail.
The second service is a Refund Anticipation Loan (RAL). This service offers all the benefits of the Bonu$ with the additional feature that money is available in 24 to 48 hours.
There are fees for these services. The bank fees and preparer fees are deducted from the taxpayer refund and a cashierís check for the net amount is presented to the taxpayer. There is no cash required on the part of the taxpayer.
Bank One offers an additional service to taxpayers who prepare their own returns. We call this our Electronic Tax Filing Service (ETF). We use our network of 1,500 Banking Centers as gathering points for persons who wish their self prepared returns to be filed electronically. This program was a tremendous increase in customer outreach for the Internal Revenue Service. The volume on this service peaked in 1994 at just over 28,000 returns. We had hoped by 1998 to do 100,000 of these returns. This product has not yet been profitable for us.
We are aware of the following banks who offered, or expressed interest in offering, this type of product as a service to their customers:
Central Fidelity Banks, Inc
Orlando Navy Credit Union
Star Banc Corp
United Jersey Bank
Wells Fargo and Company
To our knowledge, none of these banks still offer electronic filing to their customers.
We were asked to discuss barriers we had encountered in dealing with the IRS. Rather than put a label on anything, let me cite specific problems and you can identify the barriers.
In 1992, Bank One, Beneficial National Bank, Greenwood Trust, and Mellon Bank, formed the Fraud Service Bureau to mitigate high losses on refund anticipation loans. Attempts to obtain data from the IRS to help identify potentially fraudulent issues were rebuffed without explanation. Our combined efforts were successful in identifying many fraudulent issues and tax returns but again, our efforts to share data with IRS nationally were rebuffed. We were successful, in varying degrees, in providing data to individual district office special agents.
In 1990, Bank One first experimented with electronic filing services for its customers who prepared their own returns. We nurtured this business at a loss in an attempt to stay on the cutting edge of what we still see as a flourishing market for financial services related to taxes. This business peaked in 1994 and almost died in 1995 when the IRS changed its rules and required persons providing the services our banking centers were performing to be fingerprinted and re-registered even though they had provided the service in the past and were not involved in return preparation. Our banking center managers are fairly stable in their communities, they are bonded, they are closely monitored by the Office of the Comptroller of the Currency (OCC), and they are fingerprinted as officers of the bank. The IRS could not allow an exception to the new requirement for bank officers but they did allow exception for members of the American Institute of Certified Public Accountants (AICPA) and the National Association of Enrolled Agents (NAEA). Our banking center managers did not feel the negligible fee income was worth the hassle so they no longer support our program.
October 26, 1994, a day I will never forget. We received a phone call from an IRS electronic filing executive telling us that.... "as stakeholders, you are entitled to know there will be no direct deposit indicator (DDI) in 1995". A month before at the electronic filing show in Salt Lake City Utah, the entire industry had been reassured that the program was set for 1995. On September 8, 1994, the Director of Investigation, Tax Refund Fraud, had asked for our help in identifying electronic return originators (EROs) who were not approved as RAL lenders so they could scrutinize them more closely. The decision to drop the DDI was an entirely arbitrary decision that had particularly dramatic impact on industry software providers and tax preparers.
The banking industry is expert at handling monies, be they refunds or balance due. Given the ability to input to new Internal Revenue Service systems and procedures, the industry can be a key to helping the IRS design more efficient methods to locate sources of income or to transfer payments between entities. The benefits for this cooperation cannot be one-sided. Market forces must be allowed to work and the IRS must realize that nothing comes from nothing. Moving a function from the public to the private sector does not make the function free of cost. Dealing with the Internal Revenue Service could be as easy as cashing a payroll check or paying a utility bill. These are functions your local financial institution handles for you every day. We are certainly willing to share our resources and data but it must be a two way street.
A final point, the National Debtor Master File is a powerful tool available only to the IRS. Exclusive of federal tax debt, the information on the Debtor Master File would be extremely useful and valuable data to the private sector. If this information were available to credit reporting agencies, every "deadbeat dad" or delinquent student would feel the forces of the market in their credit dealings and this would certainly be a more effective tool for reducing the overall debt than the yearly surrender of a tax refund.
Thank you for this opportunity
JOHN R. GALVIN
John has been with Banc One Corporation for over 35 years and has held numerous key management positions throughout his career. He is currently Vice President and Division Executive in charge of Tax Related Products Group, a position he has held since 1989. His responsibilities in this assignment have included the development and implementation of the Bank One RAL/Bonu$ program along with the ongoing management of all related processes.