One week before the filing deadline, the IRS National Taxpayer Advocate, consumer activists and Senators have sounded the alarm against unscrupulous tax preparers.
Incompetence and corruption is widespread among the workers who help over half of Americans prepare their returns, National Consumer Law Center Attorney Chi Chi Wu told a Senate Finance Committee hearing today.
“This is not an anomaly or a handful of bad apples,” she said.
Returns completed by tax preparers have more errors than those finished by taxpayers themselves (60 percent versus 50 percent) and the average error on the extra amount owed was $354 versus $169, respectively, according to a study released at the session by the General Accountability Office (GAO).
The hearing came as the Obama Administrator tries to reverse the impact of a January federal District Court decision barring the IRS from requiring competency tests and continuing education for all preparers by calling upon Congress to pass legislation that would give the agency that authority.
Senate Finance Committee Chairman Ron Wyden (D-Ore.) called it alarming that 55 percent of the nation’s tax preparers (those unenrolled with the IRS) are not subjected to competency standards.
“It’s harming too many citizens who can least afford it. This is a problem that persists” he said.
IRS National Taxpayer Advocate Nina Olson warned that without significant federal oversight, there will continue to be a proliferation of tax preparers at check-cashing businesses, pawnshops, used car dealerships and furniture stores.
She noted some preparers connected with auto dealers inflate the refund on the return of a victim to help the person buy a car, only to leave the victim with a substantial tax penalty once the IRS finds the fraud.
Olson said a situation making much of the tax filing assistance doable by fraudsters and incompetents is that software can give an undertrained preparer the ability to fill out a tax return, but not the tax law knowledge needed to represent a client competently in an IRS exam.
“Unenrolled preparers may not possess the skill and knowledge to represent taxpayers at any level before the IRS and may cause the taxpayers more harm than good,” the agency’s consumer advocate said.
In the absence of legislation, she urged the agency to bar unenrolled preparers to represent taxpayers in audits.
Olson called on unenrolled preparers to undergo voluntary testing and continuing education, but Wyden balked, arguing voluntary compliance doesn’t deal with the scofflaws.
In a dissent Dan Alban, an attorney for the Koch brothers-funded Institute for Justice, said regulation would harm consumers by raising prices and limiting choice. Seeming to echo the arguments against financial regulation, Alban said requirements would raise compliance costs, favoring the large preparers and putting small operators out of business who cannot afford the expenses.
The call for federal regulation of all preparers at the hearing was generally ignored by the Republican members on the committee, who focused their statements on criticizing the IRS for allegedly targeting conservative groups.