TIGTA: Unenrolled Preparers Often Wrong

Unenrolled, unlicensed preparers had only a 35% accuracy rate in preparing income tax returns, in a test conducted by the Treasury Inspector General for Tax Administration.

More than one-third of the erroneous returns contained misstatements or omissions that TIGTA considered willful or reckless.

TIGTA auditors posed as taxpayers earlier this year at 12 offices of commercial tax preparation chains and 16 small, independently owned offices. Of the 28 tax returns prepared, only 11 were prepared correctly, TIGTA said. If the 17 erroneous returns had been filed with the IRS, they would have resulted in $12,828 in underpaid taxes. TIGTA determined that six returns contained willful or reckless omissions or misstatements. Fees charged by the preparers varied widely—even among similar returns—but averaged $234 per return at commercial chains and $132 at independent offices.

The IRS agreed to study TIGTA’s recommendation that it develop a system for identifying all paid preparers by identification number. As TIGTA noted, anyone, regardless of experience or expertise, who charges a fee may file a return on behalf of a taxpayer. Only CPAs, attorneys, enrolled agents and enrolled actuaries, however, are considered tax practitioners “enrolled” to represent taxpayers before the IRS.

In a separate, ongoing TIGTA study, volunteer preparers in the 2008 filing season were much more accurate. Checks of 36 returns at Volunteer Income Tax Assistance and Counseling for the Elderly sites in 12 cities yielded a 69% accuracy rate—all the more noteworthy, TIGTA said, for its improvement since the 2004 filing season, when the checks began. That year, in a check of 35 returns, the accuracy rate was zero.

See both reports at www.ustreas.gov/tigta.