Last year, the Government Accountability Office (GAO) conducted a study to test the field of tax preparation and found some interesting things. In short, of the 19 tax preparation “professionals” they shopped, only two got the tax returns right.
Tax Preparation Mistakes
Mistakes made by the tax preparers ranged from giving the individuals $52 less that they were entitled all 
the way up to $3,718 more than a correct tax return would have given them. And there’s no cause for rejoice for those who filed a tax return for more than they were entitled to. Chances are the IRS would get wise to them quickly and literally make them pay. Worse still, individuals can’t blame their tax preparers for any mistakes, given it is their signature on the forms.
Tax Preparation Study
The study was proposed when in 2011, an estimated 56 percent of about 145 million individual tax returns were completed by a paid preparer. The GAO was then asked to review the oversight and quality of paid preparers and to examine how preparers are regulated by IRS, as well as the characteristics of tax returns completed by preparers from April 2006 through August 2008 and work conducted from November 2013 to April 2014.
They found that 55 percent of all tax preparation professionals were “unenrolled,” or not subject to IRS regulation, with the rest being attorneys and certified public accountants. They then sent mystery shoppers to 19 of these and found that 17 prepared returns incorrectly. The most common mistakes were:
- Failure to report non-Form W-2 income, such as cash tips, in 12 of 19 site visits
- Claiming an ineligible child for the Earned Income Tax Credit in 3 of 10 site visits where applicable
- Failure to ask the required eligibility questions for the American Opportunity Tax Credit
- Failure to provide an accurate preparer tax identification number
While none of these alone is enough to warrant any jail time, all of them are enough to trigger an audit, which will cost far more than saved by not going with an actual professional. In the case of failing to see if the tax payer is eligible for the American Opportunity Tax Credit is not out of bounds, but can cost you, especially if you qualify.
“Transparency of pricing, minimum training and competency standards, regulation of credit products and a prohibition on junk fees represent the key components of meaningful reform,” said Michael Best, a policy advocate at the Consumer Federation of America.
Tax Preparation Issues
The Internal Revenue Service believes that part of the problems is that just about anyone can claim to be a tax professional regardless of education, experience, certification, etc.
“Other financial professionals, whose work affects the financial lives of their clients are widely regulated, yet anyone can hang out a shingle as a tax return preparer with no knowledge, no skill, and no experience required,” said National Taxpayer Advocate Nina Olson.
How to Report a Tax Preparation Scam
If you suspect or know of a tax preparation scam, there are a few things you can do:
- Call 800-366-4484 and report it
- Visit the Department of the Treasury Website and go to the IRS Impersonation Scam Reporting section
- Email the details of the scam to Phishing@irs.gov
- Fill out tax form 14157 to register your complaint
- Fill out tax form 14157-A to report that your tax preparer filed or changed your return without your consent
My Thoughts on the Tax Preparation Study
While I agree that anyone can call themselves a tax pro when they are anything but, they can also be easily spotted by their lack of stable work place, history of tax preparation, and word of mouth. The study itself only sampled 19 tax preparation pro’s, and I was unable to find if they were selected on a random or focused basis.
In fact, the Internal Revenue Service’s own numbers admits that only as little as 10 percent of tax returns are delayed due to errors, with many of them easily resolved. Indeed, if 17 out of 19, or 89 percent, of all returns are bogus, we’d be arm pit deep in the number of rejected returns.
To read the study for yourself, click here.
Tax Preparation in Houston
And if you are in need of tax preparation services in Houston or the surrounding area, please contact me.