The Government Accountability Office released the results of a new investigation involving undercover site visits in which 17 of 19 randomly selected, paid tax preparers failed to complete a tax return accurately, either due to significant mistakes or willful negligence. The new GAO investigation unveiled to the United States Senate Committee on Finance reported findings similar to those of a 2006 GAO investigation that identified preparer mistakes in 19 of 19 uncover visits.
According to the tax experts at Tax Saving Professionals, a national tax consulting company that has helped more than 7000 clients since 1998 save more than $500 million in taxes, point out that while the headline may be sensational, it’s actually taken directly from the report itself. The findings as well as conclusions of the report is cause for concern that is real and disturbingly legitimate with potentially significant negative financial consequences to all American’s who use paid preparers to file their taxes.
With the potential to cause a catastrophic blow to the “professional tax preparer industry” and a tsunami of concern to American taxpayers, the 24-page report released April 8th, 2014 by the Government Accountability Office (GAO), published the results of their investigation — “Paid Tax Return Preparers: In a Limited Study, Preparers Made Significant Errors.” (GAO, 14-467T) the report is nothing short of alarming for the approximately 85 million tax payers who filed their taxes in recent years.
Inaccuracies, inconsistencies misinformation and even incorrect refunds, among other problems pervasively plague paid professional tax preparers. According to the Tax Saving Professionals, which does not file taxes on behalf of clients, but who do provide “tax counsel and strategies,” the ramifications are extensive. The finding of the report don’t just impact on the typical average American tax payer, but even more so for those in the high income brackets.
Below are some of the key findings from the report.
Limited Investigation and IRS Data Reveal Significant Errors in Returns Prepared by Paid Preparers (GAO, 14-467t, 2014, Pg. 9)
The above disturbing headline and the following text is excerpted directly from the General Accounting Office Report.
“Tax payers rely on paid preparers to provide them with accurate, complete and fully compliant tax returns; however, tax returns prepared for us in the course of our investigation often varied widely from what we determined the returns should and should not include, sometimes with significant consequences. Many of the problems we identified would put preparers, taxpayers, or both at risk of IRS enforcement actions. The NRP’s review of tax returns from 2006 through 2009 also found many errors on returns prepared by paid preparers, and some of those errors were more common on paid prepared returns than on self-prepared returns.” (GAO, 14-467t, 2014, Pg. 9)
Definitions: Who is a “Paid Preparer”
According to the GAO report, a paid preparer is “simply anyone who is paid to prepare, assist in preparing or review a taxpayer’s tax return.” The study involved two “categories of ‘Paid Preparers’” – tax practitioners and unenrolled preparers. CPA’s attorneys, and unenrolled agents are tax practitioners. (GAO, 14-467t, 2014, Pg. 3) In most states, anyone can be an unenrolled preparer regardless of education, experience, or other standards. (GAO, 14-467t, 2014, Pg. 4)
Nineteen Site Visits Revealed Significant Paid Preparer Errors (GAO, 14-467t, 2014, Pg. 9)
Once again, the above alarming headline along with the text below comes directly from the GAO report.
“Nearly all of the returns prepared for our undercover investigators were incorrect to some degree, and several of the preparers gave us incorrect tax advice, particularly when it came to reporting non-Form W-2 income and the EITC (Earned Income Tax Credit). Only 2 of 19 tax returns showed the correct refund amount. While some errors had fairly small tax consequences, others had very large consequences…”
IRS Data Suggest Errors on Paid Preparer Returns Were Similar to Those Generated During Recent Study Site Visits (GAO, 14-467t, 2014, Pg. 20)
“As in our limited investigation (19 on site visits), our estimates from the NRP data suggest that tax returns prepared by paid preparers contained a significant number of errors” (GAO, 14-467t, 2014, Pg. 20). Furthermore, this problem is endemic as the National Research Program (NRP) a report previously published by the Internal Revenue Service, referred to in the narrative dates back to a study conducted for tax years 2006 – 2009.
Text underscoring a compelling graphic in the GAO report, page 20, states the following:
“Returns prepared by a paid preparer showed a higher estimated error rate – 60 percent – than returns prepared by the taxpayer – 50 percent. Errors in this context changed either the tax due or the amount to be refunded….it is important to remember that paid preparers are used more often on more complicated returns than on simpler ones.” (GAO, 14-467t, 2014, Pg. 20)
Highlights, Facts & Disturbing Statistics
- For Tax Year 2011, an estimated 56% of about 145 million individual tax returns were completed by a paid preparer (GAO, 14-467t, 2014, Pg. 1)
- Unenrolled preparers – those generally not subject to IRS regulation – accounted for 55% of all preparers as of March 2014. (GAO, 14-467t, 2014, Pg. 1)
- GAO found significant preparer errors during undercover site visits to 19 randomly selected preparers. (GAO, 14-467t, 2014, Pg. 1)
- The study/investigation involved “commercial paid preparers with 10 or more locations…in major metropolitan markets.” (GAO, 14-467t, 2014, Pg. 2) This included “chain” businesses.
- 81.2 million Tax returns filed for tax year 2011 were completed by a tax preparer. (GAO, 14-467t, 2014, Pg. 8)
- Tax payers with an adjusted gross income of $100,000 or more used tax preparers 63% of the time. (GAO, 14-467t, 2014, Pg. 8)
American Taxpayers Can Protect Themselves: Hire a Tax Preparer with a “PTIN”
The conclusions of the GAO Report should be both disconcerting and alarming to American Taxpayers. Over half of all taxpayers rely on the expertise of a paid preparer to provide advice and help them meet their tax obligations. (GAO, 14-467t, 2014, Pg. 22) Moreover, individuals in the higher tax brackets, those earning $100,000 or more are even more susceptible to potentially formidable financial consequences due to improperly filled out and filed taxes.
Given the overwhelming grim results of paid preparer tax performance cited in the GAO report, the American Taxpayer can have confidence in a paid tax preparer who is government certified with a “PTIN.” “PTIN” stands for Preparer Tax Identification Number.
When seeking Tax Preparation assistance, the consumer should request the tax preparer to provide their PTIN number. According to the GAO report, as of March 16th, 2014, there are approximately 676,000 paid preparers who have registered or renewed their PTINs. In 2006, the IRS made recommendations that would improve the performance of paid tax preparers; some of these recommendations included:
a. Mandatory Registration
b. Competency testing and continuing education
c. Holding all paid preparers – including unenrolled preparers – to Circular 230 standards of practice.
The IRS implemented each recommendation through regulations issued in September 2010 and June 2011. The June 2011 regulations amended Circular 230 and established a new class of practitioners called – “Registered Tax Return Preparers,” the tax preparers who have met the above requirements earn the ability to acquire a “PTIN.” The aforementioned educational merits were forcefully pointed about in the present GAO report about the importance of improving paid tax preparers performance.