Do Unregulated Tax Preparers put Taxpayers at Risk?

Did you know that nearly 80 million taxpayers use paid tax preparers, but 60% of those preparers are not regulated by the IRS?  The reason for this is because the agency is only allowed to impose requirements on tax attorneys, enrolled agents, and Certified Public Accountants?

The Government Accountability Office (GAO) said in a report this month that unlicensed tax-preparers have put their clients at risk of serious enforcement action with incorrect returns.

Tax PlanningBecause of the risk involved with hiring a non-licensed tax preparer, the debate of whether the Internal Revenue Service should regulate the millions of uncertified, paid tax preparers who operate in the United States, has grown great traction.

In a study, the GAO reviewed 19 tax preparers through undercover site visits, and found that all but two had incorrectly calculated refund amounts. Among the most common errors included:

  • Claiming ineligible children for the Earned Income Tax Credit,
  • Not reporting cash tips and
  • Not asking the required eligibility questions for a tax credit that helps students cover educational costs in exchange for community service.

While the IRS is ONLY authorized to penalize and sanction fraudulent preparers after a taxpayer has been harmed.

And even then, “it is generally the taxpayer — not the preparer — who is left holding the bag when the IRS determines more taxes, plus interest and penalties, are due,” stated Nina Olson, National Taxpayer Advocate.

The GAO found that the state of Oregon, one of only four states to regulate paid tax return preparers, had a higher level of accuracy than the rest of the nation on tax returns. The report filed by the GAO stated – “the odds of a paid preparer from the state filing an accurate return were 72 percent higher than in the rest of the country.”

The GAO has recommended that Congress consider legislation that would allow the IRS to regulate paid tax return preparers, stating the move “will help promote high-quality services from paid preparers, will improve voluntary compliance, and will foster taxpayer confidence in the fairness of the tax system.”

Back in 2010, the IRS tried to impose testing and education requirements for paid tax return preparers, but a federal court determined that the agency lacked the statutory authority to do so. The U.S. Court of Appeals for the District of Columbia affirmed the lower court’s ruling in February 2014.

President Obama’s 2015 budget proposal calls for legislation that would allow the Treasury Department and IRS to regulate all paid tax preparers.

 

Leave a Reply