Problems with paid preparers

April 5, 2006

Gaologo_2
Did you pay a tax preparer to do your return in February or March? You
might want to pull that sucker out and give it another look.

Apparently some tax pros screw up returns pretty badly. At least those that the Government Accountability Office encountered did.


Michael Brostek, director
of strategic issues for the GAO, told a U.S. Senate committee yesterday
that the government investigative office visited 19 branches of large,
commercial tax chains in a major metropolitan area over the last two
months. Find the full GAO report here, and coverage of the hearing in this Washington Post
story.


In every case, the GAO found problems on the returns: "Nearly all of
the returns prepared for us were incorrect to some degree, and several
of the preparers gave us very bad tax advice…. Only 2 of 19 tax returns
showed the correct refund amount, and in both of those visits the paid
preparer made mistakes that did not affect the final refund amount."


Some of the errors were fairly small, but others were not so easy to
ignore. The total dollar damage? The chain tax preparers hypothetically
cost the investigators $3,465 in taxes they shouldn’t have paid and, on
the other end of the ledger, made errors that resulted in more than
$12,000 in improper refunds.


Unfortunately, the error-ridden results from the GAO’s recent onsite sampling seem to be a continuation of a disturbing trend. The investigators also analyzed 2001 returns and found "many errors on returns
prepared by paid preparers, and some of those errors were more frequent
on paid-prepared returns than on self-prepared returns."

Yikes!


On one hand, it’s easy to understand why everyone, professional and
amateur alike, has such trouble with taxes. Despite political lip
service to simplification, tax laws seem to get messier each year. And a vaunted tax code overhaul remains on the shelf, not likely to see action until well after this election year.


Sometimes the changes truly are attempts to help filers, such as this
year’s uniform definition of child to make dependency claims easier, or
the special tax breaks offered to 2005 hurricane victims and those who
came to their assistance. But even with laws crafted with the best of
intentions, unforeseen individual taxpayer circumstances very often
produce thorny real-life tax consequences.


Tax laws don’t have to be new to be troublesome. The 30-year-old Earned
Income Tax Credit
, for example, is incredibly complex, driving most
people to tax professionals in an effort to avoid reaching the ends of
their ropes.

And let’s not even go into the alternative minimum tax
issue, which each year forces more and more filers to make
two separate tax computations to come up with their correct tax
liability.


So what happens now? Tax laws are not going to get any easier any time
soon. And if the pros can’t figure them out, what are average taxpayers
like you and I to do?


The GAO has recommended that the IRS conduct "necessary research to
determine the extent to which paid preparers live up to their
responsibility to file accurate and complete tax returns based on
information they obtain from their customers."


Uh, OK. But what about us? You and me and all the other potential
clients of paid preparers across the country? What should we do while
this "necessary research" is going on?


The official bottom line is Caveat Taxpayer. Remember, regardless of
who fills out the return, when you sign it, you are legally responsible
for what’s on that form.


The usual suspects:
No names were named in the GAO report, but it’s
probably a safe bet that a couple of H&R Block and Jackson Hewitt
offices were involved in the study. It’s only natural to think the fake taxpayers stopped by those companies, especially given the problems H&R Block has encountered this tax season, like
including customer Social Security numbers on tax software mailing
labels or screwing up its own
corporate return.


But that doesn’t mean the whole chain should be tarred with the same
brush, even if it does seem to be a pretty darn wide brush of late. The
GAO was careful to note in its report that the investigation was limited, and that "many paid preparers do
their best to provide their clients with tax returns that [are] fully
compliant with the tax law."


To ensure that your preparer at H&R Block or Jackson Hewitt or the
independent accounting office down the street is part of that accurate
and diligent group,
TODAY’S TAX TIP offers some steps you can take.


  • Check credentials: You want to make sure the preparer has the latest training and information on tax law changes.
  • Depend on friends: Get references from friends and family you trust.
  • Find out the fees: One-size doesn’t fit all when it comes to taxes, so
    it’s important to know how the preparer charges for routine filings and
    what might be considered additional work at an additional cost.
  • Assess accessibility: Make sure your tax pro will be around after
    April, both for potential problem resolution advice, as well as general
    tax planning assistance for next year’s return.

  • Gauge any guarantee: Different levels of training and certification
    determine just how much (or little) a professional can help you out if
    the IRS audits your taxes.

Understand the limits your preparer might
have. Also find out whether the preparer and/or the firm will pay for
any mistakes (additional tax, penalties, interest) on their part.
 

You’ll find more tips on picking a preparer at this IRS Web page.


Working girls working on their taxes:
In devising fake taxpayer
situations to present to the tax chain preparers, the GAO came up with
a plumber and his family and a single mom who worked in retail sales.

I’m guessing that retail sales meant in an actual store.


But that might be an appropriate euphemism for this woman in this New York Times
story on taxpayers employed in out-of-the-mainstream areas.


"I just write down that I’m self-employed and leave it at that," she
said. "The form doesn’t ask and I don’t tell. Just because I work as a
prostitute, I still want to be a taxpaying member of society."

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