Every year,
Americans undertake one of the most important and complicated
financial tasks imaginable – filing their tax returns.
Some will fill out a form with pen & paper, others will use a
software program or website, and some will be helped by nonprofit
programs. About 58% of taxpayers will pay a commercial
preparer to complete their tax return.
The rate is an even higher 66% among recipients of the Earned
Income Tax Credit (EITC), a refundable credit intended to boost
low-wage workers out of poverty. All told, almost eighty million
Americans put their trust, their legal liability for taxes, and
their financial health in the hands of paid preparers.
Are they getting their money's worth?
As a follow-up to “mystery shopper” testing conducted in 2008 and 2010, advocacy groups in New York and North Carolina conducted limited tests of paid tax preparers. The results? As in previous years, some tax preparers:
provided shoddy work and/or engaged in tax fraud
violated state laws in offering refund anticipation loans or refund anticipation checks
failed to disclose estimated tax preparation fees
charged surprisingly high fees, including a fee of $540 this year
“Taxpayers put their trust, their financial health, and their liability for taxes in the hands of commercial preparers,” noted Chi Chi Wu, Staff Attorney at the National Consumer Law Center. “Unfortunately, that trust may not always be well placed.”
Fraud
Some preparers even encouraged their clients to commit fraud.
In one particularly glaring case, a preparer in New York “fixed” income from a 1099 form for discharged credit card debt, and also wrongfully claimed the Earned Income Tax Credit for one of the tester’s children. Another preparer advised a tester who owed money to the IRS that she should “get a kid” in order to get a bigger refund.
RALs
In New York, none of the paid preparers that offered refund anticipation loans (RALs) and refund anticipation checks (RACs) was in full compliance with the New York City RAL law, as they did not have the proper wall poster.
The three preparers who sold or attempted to sell a RAC made misleading statements as they failed to orally disclose the nature of a RAC and two of them failed to disclose the fees.
In fact, all three presented a RAC as an automatic default option. In North Carolina, the written disclosures for Jackson Hewitt fail to include two additional fees, as required by North Carolina regulations.
Fees
As in 2010, preparers often failed to provide adequate information about tax preparation fees. Testers were not provided with estimates of tax preparation fees, which sometimes were extremely high.
Several preparers charged $300 to $500. The highest fees were charged to the testers with the biggest refunds, all of whom received the Earned Income Tax Credit. Other testers with smaller refunds were charged lower tax preparation fees, after being given “discounts.”
