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Public supports new consumer protections for tax preparing services, survey shows

6a00e550081576883401a3fcf08ffa970b-pi[1]As millions of taxpayers turn to paid tax preparers to help complete what, for many, is their largest financial transaction of the year, a coalition of consumer and community organizations and advocates is drawing attention to the findings of a national poll that demonstrates broad public support for new consumer protections designed to prevent errors and fraud during the tax preparation process.

The poll found that more than four out of five respondents believe that paid tax preparers should be required to pass a competency test, be licensed by the state and provide a clear, upfront list of fees before completing a taxpayer’s return.

“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.

The poll was commissioned by Consumer Federation of America in response to concerns about frequent errors and fraud by paid tax preparers that are used by millions of Americans.

Multiple rounds of mystery shopper tests of tax preparers found instances of incompetence and even fraud, with 24 percent of the tax returns prepared as part of a 2008 test, 44 percent of returns in a 2011 test, and 93 percent of returns in a 2015 test presenting problems.

In 2014, the Government Accountability Office sent undercover investigators to 19 randomly selected tax preparer offices. Only two of the 19, or 11 percent, of the returns had the correct refund amount.

Forty-nine percent of poll respondents used a tax preparation company in the past five years.

The GAO estimates that about 56 percent of 145 million individual tax returns (81 million) and 59 percent of returns claiming the Earned Income Tax Credit were completed by a paid preparer in 2011.

A training requirement makes particular sense for those who prepare tax returns for lower income consumers who rely on the EITC, as they can be severely impacted by an incompetent paid preparer, said Feltner. A consumer can lose the credit for 10 years if it was claimed but the consumer is later found to be ineligible.

The poll found that:

  • 80 percent of the public supports requiring paid tax preparers to pass a test administered by government that would ensure that paid preparers have the knowledge and training to complete taxpayer returns correctly.
  • 56 percent believe paid preparers should have special training, although not necessarily a degree.
  • 89 percent of respondents support requiring paid preparers to supply an upfront list of fees as tax preparation is a rare industry where prices are often not given up front before the work is done.
  • 83 percent of the public supports licensing requirements for paid preparers by a state agency that would also accept and resolve complaints, and enforce consumer protections. While a 2014 court decision stripped the IRS of its ability to protect consumers without action from Congress, state legislatures have the ability to take action to protect consumers from errors that put their tax returns at risk.

Only four states - California, Maryland, New York and Oregon - have mandatory standards for paid tax preparers who aren't already credentialed as enrolled agents, attorneys, or certified public accountants.

A 2014 court decision stripped the IRS of its ability to protect consumers without action from Congress, but state legislatures have the ability to take action to protect consumers from errors that put their tax returns at risk.

“State legislatures have the authority to implement common sense protections for taxpayers," said Michael Best, senior policy advocate for the federation. "This new national poll shows that taxpayers want the protection and peace of mind that their preparer is held accountable and is upfront about the fees that they charge.”

Copyright 2016, Rita R. Robison, Consumer Specialist


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