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GAO Finds Tax Preparers Prone to Error

April 5, 2006

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The U.S. Government Accountability Office warns that the people who get paid to prepare your taxes often make significant errors and underestimate the costs of doing returns. Members of Congress said it points up the need for some professional standards for the industry.

Even though the study was limited in scope, Senate Finance Committee Chairman Charles Grassley (R-IA) said it should cause concern. He said bad practices appear to be widespread company to company.

In the study, GAO investigators went underground, visiting tax preparers at 19 firms affiliated with commercial financial service chains, providing fictional tax scenarios. The investigators said when the returns were prepared, most of the time they were wrong. In some cases the refund was unjustified, in others the fictitious taxpayer overpaid.

Perhaps troubling to the Internal Revenue Service, the GAO report said most preparers did not report cash received from a business as income. More troubling for taxpayers, many overlooked common deductions, including tax breaks for education expenses.

The GAO also said consumers often had no idea beforehand what it would cost to have their taxes prepared. Some preparers, the investigators said, failed to provide a cost estimate, saying it would depend on what forms were used and how quickly the taxpayer wanted to receive a refund.

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