Thursday, January 29, 2009

"Second Look" Program: VITA sites have "people" too

H&R Block has a big ad campaign promoting its Second Look Campaign.

In essence, they are capitalizing on the fact that even professional tax preparers make lots of mistakes. As this Wall Street Journal article "Tax Pros Get It Wrong Too" notes, error rates can be high: a government "secret shopper" survey turned up mistakes in 61% of the returns prepared at the commercial tax preparers they shopped.

So, for a $29 fee, taxpayers can bring their returns prepared by other preparers into H&R Block, which will give them a "Second Look" Review, designed to turn up any errors their preparer may have made. H&R Blocks says it turns up errors in 80% of the returns they examine in the Second Look program. Then the client has the option to pay even more money to H&R Block to prepare an amended return to correct the errors, either claiming an additional refund or paying the additional tax due.

H&R Block's slogan is "You've got people," and, indeed, I've met a number of professional tax preparers, from H&R Block as well as other tax prep businesses, that are very good.

But VITA sites have "people" too. We can do "Second Look" returns for free. In the past, clients have brought us returns prepared by other tax preparers to look over, and we have found mistakes and prepared amended returns for the client at no charge at all.

In some cases, where taxpayers come to us with complicated tax situations outside the scope of VITA training and certification, we do need to refer them to professional preparers.

Unfortunately, it's not necessarily easy to find a good tax preparer. There is NO certification or licensing process legally required. Anyone, even a convicted felon, can legally hang out or his her shingle as a "professional tax preparer," so it's very much a "buyer beware" situation. The risk is not just that a tax preparer may make mistakes in preparing a return, there are actually cases in which tax preparers have committed crimes of identity theft, filed deliberately fraudulent returns (and pocketed all or part of the client's refund themselves).

In cases in which we need to refer taxpayers to professional paid tax preparers, due to complex issues outside the scope of our certifcation, we can NOT recommend specific preparers, as a matter of IRS policy for VITA sites.

However, we can give taxpayers some general guidance on how to choose a tax professional:

IRS tips for choosing a tax preparer

LA Times Advice for choosing a tax preparer

(NOTE: VITA sites, despite their IRS training and certification aren't universally perfect either. "Secret shopper" visits to VITA sites have found mistakes at some VITA sites as well. A few years ago, the secret shoppers turned up errors at 100% of the VITA sites they visited. That error rate has fall several times in the past few years, and the most recent survey found a 31% error rate at VITA sites.

Those error rates are still way too high and unacceptable in my book. The costs of mistakes on a low-income taxpayer's return are very serious. Either the taxpayers get refunds smaller than they are entitled to, or they get too big a refund, which may expose them to the risk of repayment of the excess along with interest and penalties down the road.

That's why I insist on a four-step quality review process at our VITA site. (1) The preparer looks the return over carefully before turning the return over to a designated quality reviewer, (2) the designated quality review checks over a multi-page checklist of items, and (3) then the original preparer goes over the return line by line with the taxpayer, and (4) finally I look over the entire return carefully prior to efiling, if necessary checking again with the taxpayer for additional clarification.)

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