Who is preparing your tax return?

The IRS recently announced that, starting next year, they will require registration, testing, and licensure of tax return preparers.

What? You didn’t know that the guy at Wal-Mart doing your taxes wasn’t licensed?

Nope, he’s probably not.

The retail tax return preparation industry has operated for decades with no oversight from the federal government. Retail tax preparation companies are left to their own devices to train their employees. Many of these folks are seasonal employees with very little actual tax training. I worked one tax season for a major retail tax chain, and I was appalled at the lack of training and low level of tax knowledge of most of the people I worked with. For the most part, most of the folks doing taxes in strip malls and other places across America only know how to run the computer software, not actually do a tax return. It’s a very scary proposition.

While I am generally opposed to most forms of government intervention in the lives of private citizens and most businesses, this is a change that I actually think is too long in coming. As a case in point, the Government Accountability Office recently mystery shopped 19 franchisees of major chain tax prep firms. Here is the verbatim report from the GAO study:

The GAO study targeted 19 outlets of chain commercial tax return preparation firms.27
The GAO staff asked tax return preparers at those 19 outlets to prepare federal tax
returns under one of two scenarios for which staff from the GAO, Senate Committee on
Finance and the Joint Committee on Taxation had previously completed tax returns and
agreed upon the contents of the return and the correct amount of tax.
According to the GAO, only two of the 19 tax return preparers had the correct tax
liability and refund amounts on the return they prepared and all 19 tax return preparers
made a mistake on the prepared returns. Although most of the 19 tax return preparers
included all income for which a payor had an information reporting requirement, three
tax return preparers reported incorrect amounts of ordinary dividends or capital gain
income. Eight of 19 tax return preparers reported the shopper’s prior year’s state tax
refund incorrectly. Several tax return preparers did not ask about income from sources
other than wages and, although all tax return preparers were told that there was income
from casual self-employment arrangements, 10 of the 19 tax return preparers did not
report this income as required. Several of the tax return preparers who did report this
income on the returns they completed did not provide the shopper with correct
information. One tax return preparer told the shopper that she did not have to report the
income unless it was more than $3,200. Others advised that the shopper had discretion
on whether to report this income because the IRS would not know about the income
unless it was reported.

The tax return preparers also made mistakes when it came to claiming the proper
amount of credits and deductions. For example, 10 shoppers were entitled to a credit
for child care expenses for their shopper, but none of the tax return preparers who
prepared a return for these shoppers claimed the credit. Although nine shoppers would
have benefitted by itemizing their deductions, two of the nine tax return preparers who
prepared their returns only claimed the standard deduction. Of the seven tax return
preparers who did itemize their shopper’s deductions, five prepared returns claiming an
incorrect amount of deductions. Six of these nine tax return preparers also erred in
determining the amount of education credit to claim for the shopper. The 10 tax return
preparers who were presented with an earned income tax credit scenario also made
significant errors. Only one of these 10 tax return preparers asked all of the required
questions and half of the 10 tax return preparers incorrectly reported that GAO’s
shopper was entitled to the earned income tax credit for two children when the shopper
was only entitled to claim the credit for one of her children.

So, again, the question: Who is preparing YOUR tax return? I hope and pray that it’s not some moron crammed into a cubicle at Wal-Mart, especially if your tax situation is anything more complicated than a couple W-2′s from a job or two and maybe your child tax credit or something. If you have investments, Earned Income Credit, Alternative Minimum Tax issues, a small business — anything even remotely sophisticated — please have your return done by a licensed professional. By this I mean either a Certified Public Accountant (CPA – licensed by the states) or an Enrolled Agent (EA – licensed by the IRS directly). You will most likely pay a few dollars more, but trust me, it’s worth it.

If you would like a review of an already filed tax return, or need to have your tax returns filed, please contact me directly at 866-627-7654, and I’ll help you out on this.

Until next time,

Jassen Bowman, EA