You would not give your Social Security number to your hairdresser or your bank account password to a hot dog vendor, and yet both of those people are more regulated than a tax preparer, says a consumer advocate.
“People believe paid tax preparers are regulated and licensed, but for the most part they are not,” says Ali Mickelson, director of tax and legislative policy at the Colorado Fiscal Institute. Mickelson was one of several people to speak at a press conference in Washington, D.C., held Wednesday by the Consumer Federation of America.
The federation is pushing states to enact regulations and licensing requirements for paid tax preparers. It also released the results of its latest survey, “Public Views on Paid Tax Preparation,” which says an overwhelming majority of consumers want more regulation and training for paid tax preparers.
Inaccurate tax returns done by paid preparers are a significant problem, according to the federation. A 2014 Government Accounting Office secret shopper test of 19 tax preparers found errors in 17 of the returns. And the Consumer Federation of America says other studies have come up with similar results. Mistakes cost the consumer money, either by lowering the refunds they deserve or by garnering higher refunds that leave them open to fines and penalties down the road. The consumer is responsible for errors made by a tax preparer.
Half of the public uses paid tax preparers some of the time, and one-third use them regularly, yet only four states—California, Maryland, Oregon and New York—have consumer protection laws on the books specifically for paid tax preparers. The Consumer Federation of America has prepared a model state law that legislatures can use.
Eighty percent of the 1,011 consumers surveyed want tax preparers to pass a government test to demonstrate their proficiency, and 83 percent support licensing. Eighty-nine percent want up-front pricing for services.
“This is the most important financial document a person does each year, and there are high levels of error and even fraud,” says Chi Chi Wu, staff attorney with the National Consumer Law Center.
Consumers have no way of shopping around for services because fees are often not disclosed, says David Rothstein, director of resource development and public affairs at the Neighborhood Housing Services of Greater Cleveland.
Until state or federal regulations are enacted, Mickelson says consumers should go to a CPA, attorney or enrolled agent for tax preparations and ask questions up front to see if the person has tax experience and knows the IRS rules. An enrolled agent is a person with tax training or IRS experience who is qualified to appear before the IRS in tax disputes.