Does Your Tax Preparer Really Know What They’re Doing?

couple_taxes

Half of Americans pay for help doing their taxes, but most wish tax preparers had better credentials, a new survey has found.

Only four states currently have rules surrounding who can charge a fee to do someone else’s taxes — about 1.2 million tax preparers do so annually, according to the Pew Charitable Trusts. In Oregon, California, Maryland and New York, tax preparers must satisfy requirements such as taking classes or passing a test — but the other 46 states have no such rules, and the Internal Revenue Service isn’t allowed to set them. In 2014, the U.S. Supreme Court said so, ruling that only Congress could set such rules. And Congress hasn’t acted.

American consumers, by a wide margin, would like to see this changed, according to the survey released Wednesday by the Consumer Federation of America. Four out of five consumers want tax preparers to pass a test administered by a government agency; and 83% support licensing requirements, the CFA said.

Tax Preparer Error Rates Can Be High

“American consumers are being reasonable…it’s Congress and state legislatures that aren’t being reasonable,” said Chi Chi Wu, an attorney at the National Consumer Law Center.

The CFA also called for better fee disclosure, and consumers agreed with that, too — 89% said they support requiring paid tax preparers to supply an upfront list of fees. Training is an issue because repeated “secret shopper” tests have shown tax preparation firms can have high error rates, as Credit.com told you last year.

For example, a 2014 test authorized by Congress sent 19 “secret shoppers” to tax prep firms. Only two of the returns were completed accurately. Mistakes ranged from giving taxpayers $52 less to $3,718 more than they were entitled to. A survey of taxpayer errors from 2006 through 2009 found that tax returns done by preparers had a higher estimated percentage of errors — 60% — than self-prepared returns — 50%.

Part of the problem, say consumer groups and the IRS, is that almost anything goes in the tax prep industry.

“Anyone can hang out a shingle as a tax return preparer, with no knowledge, no skill and no experience required,” lamented Taxpayer Advocate Nina Olson in congressional testimony.

Tax Preparer Errors Can Be Costly

“With budget cuts at the Internal Revenue Service that limit customer service, more and more people will need to consult a paid tax preparer to get help with their taxes,” Linda Sherry, National Priorities Director for Consumer Action, said. “The thought that consumers pay good money for bad advice is appalling. New consumer protections must be adopted to prevent errors and fraud and ensure that taxpayers can rely on the advice they are paying for.”

After losing its Supreme Court case, the IRS set up voluntarily training programs. And some tax prep firms offer in-house training. But consumer groups say tax season is too important to leave to voluntary compliance.

“Errors on tax forms put consumers at risk of fines and lost tax refunds yet few states have taken action to ensure that paid tax preparers are licensed and trained and disclose what are often high and unpredictable fees,” said Tom Feltner, Director of Financial Services at the Consumer Federation of America.

If you want to know if you have an unpaid tax debt that could be following you, you can check your free annual credit reports at AnnualCreditReport.com and see if you have any tax liens on your report. You can also check your credit scores every month for free on Credit.com.

How to Find a Good Tax Preparer

The IRS has many tips on its website for ways to choose a qualified tax preparer, including:

  • Avoiding return preparers who claim they can obtain larger refunds than other preparers.
  • Avoiding preparers who base their fee on a percentage of the amount of the refund.
  • Use a tax professional that signs and enters a preparer tax identification number (PTIN) on your tax return and provides you with a copy for your records.

Funding cuts in IRS Taxpayer Services division make the issue even more critical, Sherry said. During last year’s tax season, the IRS was only able to answer about 37% of phone calls, and the average hold time was 23 minutes, according to a Taxpayer Advocate report.

If you want to limit your tax bill this year, find out how to file your taxes for free here.

More Money-Saving Reads:

Image: iStock

The post Does Your Tax Preparer Really Know What They’re Doing? appeared first on Credit.com.