Report finds tax preparers frequently make mistakes

Health care tax forms 8962 and1095-A.
Health care tax forms 8962 and1095-A. Associated Press file

A new report on paid tax preparers in the Triangle and Florida found a high level of errors and a wide disparity in the fees that they charge consumers.

The report released this week demonstrates that “we really need to raise the competency level and the bar on paid preparers,” said Chi Chu Wu, staff attorney for the National Consumer Law Center. The center worked with two consumer advocacy groups, Reinvestment Partners in Durham and the Florida Alliance for Consumer Protection, on the report.

A team of mystery shoppers that went to 29 independent tax preparers and major chains found that all but two of the returns they prepared were inaccurate – that is, the returns contained at least one significant error that impacted the amount of tax paid. A dozen of the preparers included in the report are in Raleigh or Durham; the remainder are in Tallahassee, Fla.

There was no meaningful difference between the tax preparers, which aren’t identified, in the two states.

“It’s a national problem,” said Peter Skillern, executive director of Reinvestment Partners. Nationwide, more than 70 million taxpayers pay to have their income taxes done.

One of the reasons Reinvestment Partners participated in the study is that, for the low-income clients that the nonprofit works with, “taxes can be one of their biggest financial transactions of the year,” Skillern said. “Getting the refund right is important.”

Other studies have found similar high levels of errors. The report cites a 2014 study in which the U.S. Government Accountability Office sent out 19 undercover investigators to preparer’s offices. Just two of the 19 preparers produced a return with the correct refund amount, with the mistakes ranging from $52 less to $3,718 more than the taxpayer was entitled to receive.

In the new study, mystery shoppers who posed as taxpayers with one of two relatively simple tax scenarios were charged widely varying prices – from a low of $37 to a high of $427 under one scenario, and from $50 to $341 under the other.

“The layman’s analysis is, if you’re willing to pay more, they’re willing to take more,” Skillern said.

The mystery shoppers asked the preparers to fill out, but not file, federal tax returns for them.

One scenario involved a single parent who earned $22,000 from a job as an administrative assistant and another $800 from selling craft jewelry and music CDs.

The parent was ineligible to claim an Earned Income Tax Credit of $2,523 because they provided less than 50 percent of the support for their daughter. Yet, even though the shoppers informed the preparers that the other parent provided the majority of the support, 8 of 15 preparers improperly claimed the daughter.

Although claiming the EITC means more money for the taxpayer, “the tax preparer is not doing the client a favor by entering in the wrong information,” Skillern said. “The client becomes liable” for any penalties.

In addition, 12 of the 15 preparers didn’t report the $800 in side income.

One local preparer told the mystery shopper, “It’s not a lot, don’t worry about it,” according to the report.

“We saw a fair amount of instances ... of fraud,” said Amelia O’Rourke-Owens, staff attorney at Reinvestment Partners. “We were all surprised by the number of preparers who were just gathering all of the information and still putting fraudulent information” in the returns.

Skillern hopes the report will raise awareness among North Carolina legislators of the need for state regulation of tax preparers.

“North Carolina needs to pass minimum standards for tax preparers to protect consumers and the integrity of the system,” he said.

Nationwide, just four states mandate educational, training or competency standards for tax preparers. The Internal Revenue Service’s plan to impose standards was waylaid last year by a federal appellate court ruling that found the agency had exceeded its authority.

The disparity in prices charged by preparers is compounded by a lack of transparency, according to the report.

By and large, the preparers don’t quote prices in advance, although a few in North Carolina provided “estimates,” said O’Rourke-Owens.