Monday, February 9, 2009

Tax preparers: do you get what you pay for?

Wall Street Journal September 2008 Tax Pros Get it Wrong, Too.

In a limited study of tax returns completed by unlicensed paid preparers, 17 out of 28 -- or 61% -- were prepared incorrectly, including one that showed the taxpayer owing $4,903 more than he really did, according to a study by the Treasury Inspector General for Tax Administration (TIGTA), which provides independent oversight of IRS activities.

While most of the mistakes resulted in an underpayment of taxes or a too-big refund, sometimes it was the taxpayer, not the government, who would have paid for the mistake, according to the study in which TIGTA auditors posed as regular taxpayers and visited tax preparation offices in a single metropolitan area.

Six returns overstated the amount taxpayers owed by a total of $7,798, with the most glaring of these showing the $4,903 overpayment. Another return had a $1,043 overpayment, while the others were under $1,000. The returns prepared for the study were never filed; the auditors told the preparers they would file the returns themselves, but didn't.

Given the study's small sample size, the findings cannot be generalized to all paid preparers.

The article goes on to quote an H&R Block spokesman who says that 5% of their preparers have external credentials ("Circular 230"), which would allow them to represent taxpayers before the IRS.

The article also notes that preparer fees vary widely, and there is apparently no correlation between the size of the preparer fee and the correctness of the return.

Consumers should also shop around on fees. The report found a range of fees charged for the same taxpayer scenario. For instance, auditors were charged five different amounts by five different preparers to complete a return for the same hypothetical taxpayer -- that of a divorced wage-earning parent with one child under 17 -- in the same metropolitan area.

The fees ranged from $74 to $271. Paying more did not guarantee a more accurate return: Three preparers who charged $74, $150 and $271, respectively, provided correct returns, while the others contained errors. One practitioner who charged $200 prepared a return that was "willfully or recklessly" prepared, according to the report.

The fees noted above are apparently just the fees for return preparation itself and do not include such ancillary services as refund anticipation loans and audit insurance, which can run up the bill considerably.

More interesting reading on this topic :GAO 2003 report, Paid Tax Preparers: Most consumers believe they benefit, but some are poorly served.

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