Is Your Tax Preparer Clueless?

Thursday, April 13, 2006 | Married and Mortgaged

On March 11, 2005, I had an epiphany while a young man prepared my taxes in one of those nationwide tax preparation chain stores: This guy doesn’t know what he’s doing.

OK, maybe that doesn’t meet the definition of an epiphany. It was more of a sudden understanding because I had no idea the guy had no idea until I was in the store and halfway through my taxes. I had just assumed that a man in a suit working at a store developed entirely for the purposes of tax preparation would know something about, you know, taxes.

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Stupid me. My chain-store tax guy is just like the guy who works at the Gap; he looks very official with his headset, but probably doesn’t know much about how ribbed t-shirts are made or why they cost $10 when they were manufactured for 95 cents. I pleasantly refused chain-store tax guy’s offer to provide my refund the same day for a small fee (of course, there was no mention that this would actually be a loan involving interest), paid $98 for the service and went over the return carefully at home before filing.

Said chain store has been calling me all spring, but I’ve ignored their calls because I can do as well or better than chain-store tax guy with tax preparation software and for a lot less money. I’m deliberately avoiding mentioning the chain by name because I can’t prove the tax guy didn’t know what he was doing, it’s just a hunch. But according to recent government reports, it’s a good one.

An April 4 report by the Government Accountability Office found that when investigators had tax returns prepared at 19 tax chain outlets, mistakes made by preparers resulted in unwarranted extra refunds of up to $2,000 in five instances. In another two instances, they shorted the taxpayer more than $1,500.

Among the most serious problems found were:

– Not reporting business income in 10 of 19 cases;

– Not asking about where a child lived or ignoring the answer and claiming an ineligible child for the earned income credit in five out of 10 applicable cases (Note: you can’t claim a child who doesn’t live with you);

– Failing to take the most advantageous postsecondary education tax benefit in three out of nine applicable cases; and

– Failing to itemize deductions or failing to claim all available deductions in seven out of nine applicable cases.

On March 31, the Treasury Department’s inspector general for tax administration reported that the Internal Revenue Service has allowed tax preparers to continue their practice after being convicted of tax-related crimes, suspended by state officials or failing to pay their own taxes. The report found 4.5 percent of licensed tax practitioners haven’t complied with their own tax obligations, representing nearly $900,000 worth of unpaid taxes.

The inspector general’s investigation focused on licensed tax preparers (enrolled agents, attorneys and certified public accountants) who are authorized to practice before the IRS, which means they can represent taxpayers in audits and other proceedings. However, there are hundreds of thousands of unlicensed tax preparers who have done nothing more to prepare for the job besides printing up some business cards.

According to the GAO, tens of millions of taxpayers pay someone to prepare their tax returns every year. There are several hundred thousand CPAs and attorneys authorized to practice before the IRS and about 41,000 active enrolled agents, who must have worked for the IRS previously or pass an IRS examination.

In 2003, the estimated number of unenrolled tax preparers ranged from 300,000 to 600,000, according to the National Taxpayer Advocate, an independent arm of the IRS created to assist taxpayers. The GAO investigation found that major chain preparation stores have thousands of offices nationwide. “Despite the importance of paid tax return preparers in helping taxpayers fulfill their obligations, little data exist on the quality of services they provide,” the report says.

It’s great that GAO is reporting on problems with chain tax preparers and that the inspector general wants better enforcement, but these aren’t new problems or problems that Congress and the IRS just heard about. In fact, in a prepared testimony before the Senate Finance Committee last week, a GAO official noted that the organization warned Congress of the problem in a 2003 report. And the IRS Office of Professional Responsibility, which regulates licensed tax practitioners, has increased its enforcement budget and staff significantly in the past several years, but the inspector general found those resources are still inadequate.

So the real news is that when it comes to buying the honest services of tax preparers, we’re all on our own. Buyers should be very aware because a simple fact remains no matter how qualified your preparer is, and it’s right there on the tax forms: The taxpayer is legally responsible for their tax returns no matter who prepared them. Tax evasion is both risky and a crime, punishable by up to five years imprisonment and a $250,000 fine.

– Run away from any tax preparer who won’t sign the return, which they are legally required to do. And never sign a blank return or with pencil.

Catherine MacRae Hockmuth is a freelance writer in Chula Vista. “Married and Mortgaged” runs every other Thursday. E-mail her at