Home > Taxes > Does Your Tax Preparer Really Know What They’re Doing?

Comments 0 Comments

Half of Americans pay for help doing their taxes, but most wish tax preparers had better credentials, a new survey has found.

Only four states currently have rules surrounding who can charge a fee to do someone else’s taxes — about 1.2 million tax preparers do so annually, according to the Pew Charitable Trusts. In Oregon, California, Maryland and New York, tax preparers must satisfy requirements such as taking classes or passing a test — but the other 46 states have no such rules, and the Internal Revenue Service isn’t allowed to set them. In 2014, the U.S. Supreme Court said so, ruling that only Congress could set such rules. And Congress hasn’t acted.

American consumers, by a wide margin, would like to see this changed, according to the survey released Wednesday by the Consumer Federation of America. Four out of five consumers want tax preparers to pass a test administered by a government agency; and 83% support licensing requirements, the CFA said.

Tax Preparer Error Rates Can Be High

“American consumers are being reasonable…it’s Congress and state legislatures that aren’t being reasonable,” said Chi Chi Wu, an attorney at the National Consumer Law Center.

The CFA also called for better fee disclosure, and consumers agreed with that, too — 89% said they support requiring paid tax preparers to supply an upfront list of fees. Training is an issue because repeated “secret shopper” tests have shown tax preparation firms can have high error rates, as Credit.com told you last year.

For example, a 2014 test authorized by Congress sent 19 “secret shoppers” to tax prep firms. Only two of the returns were completed accurately. Mistakes ranged from giving taxpayers $52 less to $3,718 more than they were entitled to. A survey of taxpayer errors from 2006 through 2009 found that tax returns done by preparers had a higher estimated percentage of errors — 60% — than self-prepared returns — 50%.


Part of the problem, say consumer groups and the IRS, is that almost anything goes in the tax prep industry.

“Anyone can hang out a shingle as a tax return preparer, with no knowledge, no skill and no experience required,” lamented Taxpayer Advocate Nina Olson in congressional testimony.

Tax Preparer Errors Can Be Costly

“With budget cuts at the Internal Revenue Service that limit customer service, more and more people will need to consult a paid tax preparer to get help with their taxes,” Linda Sherry, National Priorities Director for Consumer Action, said. “The thought that consumers pay good money for bad advice is appalling. New consumer protections must be adopted to prevent errors and fraud and ensure that taxpayers can rely on the advice they are paying for.”

After losing its Supreme Court case, the IRS set up voluntarily training programs. And some tax prep firms offer in-house training. But consumer groups say tax season is too important to leave to voluntary compliance.

“Errors on tax forms put consumers at risk of fines and lost tax refunds yet few states have taken action to ensure that paid tax preparers are licensed and trained and disclose what are often high and unpredictable fees,” said Tom Feltner, Director of Financial Services at the Consumer Federation of America.

If you want to know if you have an unpaid tax debt that could be following you, you can check your free annual credit reports at AnnualCreditReport.com and see if you have any tax liens on your report. You can also check your credit scores every month for free on Credit.com.

How to Find a Good Tax Preparer

The IRS has many tips on its website for ways to choose a qualified tax preparer, including:

  • Avoiding return preparers who claim they can obtain larger refunds than other preparers.
  • Avoiding preparers who base their fee on a percentage of the amount of the refund.
  • Use a tax professional that signs and enters a preparer tax identification number (PTIN) on your tax return and provides you with a copy for your records.

Funding cuts in IRS Taxpayer Services division make the issue even more critical, Sherry said. During last year’s tax season, the IRS was only able to answer about 37% of phone calls, and the average hold time was 23 minutes, according to a Taxpayer Advocate report.

If you want to limit your tax bill this year, find out how to file your taxes for free here.

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team