In
2006 the Government Accountability Office (GAO) sent undercover operatives to
19 “commercial preparer” branch offices in a major metropolitan area posing as
taxpayers looking to have their tax returns prepared. Errors were identified in 19 of the 19
completed federal returns, some “significant”.
The GAO published the results of the undercover operation in “Paid Tax Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”
(GAO-06-563T). It is believed that this
study started the ball rolling on what led to the IRS initiation of the
now-dead mandatory RTRP tax preparer regulation program.
In
2014 the GAO did it again -
“We had tax returns prepared for us at 19
randomly selected locations of several commercial preparers throughout a major
metropolitan area. We chose the major
metropolitan area based on the criteria such as (1) location in a state that
does not regulate paid preparers, (2) presence of multiple commercial
preparers, and (3) location in a state that does not levy an income tax. Our investigators posed as taxpayers and
asked paid preparers to prepare, but allow us to file, our federal tax returns
under one of two scenarios, as described later in this testimony {a
“waitress scenario” and a “mechanic scenario” – rdf}. The two scenarios incorporated
a range of commonly used IRS forms and lines on the Form 1040.”
Once
again the GAO again found “significant” preparer errors -
“Refund errors in the site visits varied from giving the taxpayer $52
less to $3,718 more than the correct refund amount”. However in this investigation “2 of 10 preparers calculated the correct
refund amount”.
The
GAO found –
“The quality and accuracy of tax preparation
varied. Seventeen of 19 preparers completed
the correct type of tax return. However,
common errors included
·
not reporting non-Form W-2 income
(e.g. 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;
·
not asking the required eligibility
questions for the American Opportunity Tax Credit; and
·
not providing an accurate preparer
tax identification number.”
As
a result of the operation the GAO issued the report “Paid Tax Return Preparers: In a Limited Study, Preparers Made Significant Errors”.
The
report also indicates –
“The fees charged for tax preparation
services varied widely across the 19 visits, sometimes between offices
affiliated with the same chain.”
Elaborating
–
“For the waitress scenario, the final fees
charged for tax preparation ranged from $160 to $408. For the mechanic scenario, the final fees
charged for tax preparation ranged from $300 to $587. For the two correct tax returns that were
prepared, the final fee charged was $260 for the waitress scenario and $311 for
the mechanic scenario.”
What
is significant about these two almost identical operations? The paid preparers who were visited were “commercial preparers”. The term “Commercial Preparers” is actually
in the title of the first report. And in
the current report the GAO explained (the highlight is mine) –
“We visited commercial paid preparers with 10
or more locations. We did not visit any
law firms, Certified Public Accountant (CPA) firms, or single-office tax return preparation businesses.”
Who
are “commercial preparers” with multiple locations? H&R
Block, Liberty Tax Service, and Jackson Hewitt Tax Service – to name the
biggest three.
The
GAO report admitted (as usual, the highlight is mine) –
“Because our 19 site visits are limited in
size, results cannot be used to
generalize our findings to the retail tax preparation industry.”
The
results have absolutely no application
to the “unenrolled” independent “single-office” tax preparer, like for
example me. They can only be applied to
the multi-location “commercial tax preparer” community.
It
comes as no surprise to me that (1) the preparers employed by Henry and Richard
and others of their ilk frequently make serious and significant errors (my
mentor had always wished an H&R Block office would move next door to us because
we could make tons of money amending H&R prepared returns to fix their FUs)
and (2) the fees charged by Henry and Richard and others of their ilk are high
and erratic.
When
the GAO made a presentation on the 2006 study at the IRS Nationwide Forum I
asked the presenter if any of the 19 tax preparers visited had asked the
undercover client for a copy of their prior year’s tax return? When I was accepting new clients, the first
thing I asked a newbie was to give me copies of their last 3 tax returns, as, I
expect, do most if not all of my fellow independent “single-office” preparers. The answer I was given was “no”. None
of the commercial preparers visited had asked to see a prior return.
I
emailed the same question to James R. McTigue, Jr, the GAO Director of
Strategic Issues, and he responded -
“Thank you for your interest and question. I checked with my staff and this is not
something that we specifically tracked.
Based only on their recollection a few may have asked for it, but we
simply stated we didn’t have it. This
was not a problem for us in obtaining service.”
As
I posted about the 2006 operation here back in January of 2007 –
“The GAO agents also discovered unethical
sales practices related to Refund Anticipation Loans (RALs). The annualized
interest rate for the RALs offered to the ‘taxpayers’ ranged from 380% to 470%.”
Thankfully
H&R, etc. no longer offer usurious RALs.
The
GAO recommends –
“If Congress agrees that significant preparer
errors exist, it should consider legislation granting IRS the authority to
regulate paid tax preparers.”
I
do not concur (for one thing, the statement “if Congress agrees” precludes any such legislation – the idiots
cannot agree on anything). Mandatory
regulation of paid tax preparers is not the answer.
My
recommendation is for taxpayers. It is nothing new - I have been saying it for years. Do not go to Henry and Richard, Liberty,
Jackson Hewitt, or any other “fast food” preparation chain to have your tax returns
prepared. Choose instead an
independent “single-office” tax professional, “enrolled” or not.
For
information and resources on how to find a tax preparer go to my website FIND A TAX PROFESSIONAL.
TTFN
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