Tax Help Found Behind Unlikely Doors in Valley
Yong Chough never would have started doing tax returns out of his family’s Super Electronics store if the competitor next door, Discoteca y Electronica Mexico, hadn’t thought of it first. But the idea of such a seasonal side business, which initially struck him as odd, soon revealed a certain undeniable logic: Customers were more likely to buy TVs and stereos from a salesman who told them to expect hefty refunds.
“A majority of these people get refunds,” said Chough, 26, referring to the working-class Latinos who make up much of his store’s clientele. “We get more business during income tax season because everybody is getting money back.”
After three years as a part-time tax preparer, however, Chough is thinking of calling it quits. The problem is too much competition. Across the street from his family’s store on San Fernando Road are two shoe stores and a furniture store with tax preparers in the back. In a small strip mall one block over, a check-cashing store, a travel agency and a wedding chapel offer tax services as well. Grocery stores and beauty salons have been known to do taxes, too.
“What the people have started doing is going door-to-door for estimates, shopping around to see if one place can get them more than another place,” Chough complained.
The proliferation of unusually packaged tax preparation services is a phenomenon not just in San Fernando, but in Spanish-speaking communities from Canoga Park to Pico-Union. Recent Latino immigrants unfamiliar with the spring rite of filing tax returns (and just as baffled by it as their American-born counterparts) have given rise to a booming cottage industry staffed by savvy merchants with computers and electronic filing software.
Latino immigrants are an attractive market, these tax preparers say, because the tax returns they file are often easy to do. Low-income wage earners such as factory and restaurant workers usually show up for their tax meetings armed with one W-2 form, a list of dependents and no house payments or itemized deductions. Charging $25 to $40 a pop for the short form--the going rate this year--a part-time preparer such as Rosie Fregoso can earn $9,000 in three months plowing through 300 sets of returns.
“Many of these businesses don’t make a lot of money, so they do everything,” said Fregoso, who does taxes at a combination money wiring and travel agency business on Van Nuys Boulevard in Pacoima, where she works as a secretary the rest of the year.
Contradicting the popular image of undocumented Latino immigrants as people who do not pay taxes, tax preparers like Fregoso say their clients are usually only too glad to file their returns because most can expect refunds as long as their employers withheld taxes during the year. With incomes averaging less than $15,000 and several children as dependents, a vast majority are eligible for the earned income credit--a tax break for the working poor--and receive refunds of several thousand dollars each.
In the city of San Fernando, for instance, 36,079 people filed 1993 tax returns, and 15,877 of them were eligible for the credit, according to IRS figures. The credit is so common, in fact, that many clients come to expect substantial refunds and become indignant when they do not receive them, preparers say.
“When you tell them they have to pay, they get upset because all they really know about filing is that their friends or family have gotten these huge checks,” said Claudia Hoyos, who does taxes three months a year at the Del Valle Insurance Agency in Panorama City.
The attitude of Jorge Alberto Cruz, 21, an immigrant from Jalisco, Mexico, is typical of many first-time Latino taxpayers. The foreman at the clothing factory where Cruz works “told me if you don’t do the forms you are breaking the law, but if you do, you can get money.” It was an easy choice.
Cruz said he was referred to Raymund’s Jr. Tax Service in Northridge when he cashed a check at an adjacent clothing store two months ago. The clothing store owner is the father of the sisters who run the tax service and did not disappoint Cruz, who received a federal refund of $2,000. On Thursday, he was back at the Raymund’s Jr. office to inquire about the status of his state refund.
But Mirella Horta, one of the sisters who runs Raymund’s Jr. Tax Service, said that tax time does not always end so happily for her clients. Rifling through a stack of papers on her desk, Horta pulled out the 1099 (miscellaneous income) forms furnished to clients who work as housekeepers and gardeners showing that no taxes were withheld from their pay during the year.
Under federal law, their employers should have given them W-2s and taken taxes from their wages. Because they didn’t, the workers will have to ante up hundreds of dollars they have not saved unless they can come up with legitimate business deductions they also do not have.
Some of her clients also include undocumented workers who have been paid in cash and have no record of their earnings, but are nonetheless eager to file their returns to avoid future legal problems, Horta said.
Occasionally, legal problems arise when immigrants have their taxes done by an unlicensed, unskilled or unscrupulous preparer, said Melvin Mora, who runs a combination tax preparation service, travel agency, real estate office and notary public in Pacoima called La Fiesta Travel & Tours.
According to Mora, some part-time preparers are ill-equipped to assist undocumented workers who flock to their offices to find their way through a process that becomes vastly more complicated when the workers and their dependents do not have valid Social Security numbers.
Even though such workers are still eligible for refunds, they will be issued intimidating letters by the IRS asking for documents establishing their identities and proving their number of dependents before they can receive their checks. (Although the IRS has begun cracking down on fraudulent Social Security numbers, it is generally unconcerned with a worker’s resident status--only whether that worker is paying taxes, owes any taxes or is entitled to any refunds.)
But by the time IRS letters arrive, many part-time preparers have packed up their computers and moved on, Mora said, and the workers usually give up claiming their refunds.
“It’s incredible the audits I have to fix due to these little places,” Mora said.
Anyone who does taxes for a fee must be licensed as a tax preparer by the state. Preparers must undergo 60 hours of training, post a $5,000 bond and pay a $40 fee to secure the licenses. Last year, there were 33,500 licensed tax preparers in California. About half the tax preparers interviewed for this article displayed their licenses in their stores or were listed as licensed by the state.
Sherrie Moffet, a program manager for the State Department of Consumer Affairs division that monitors tax preparers, said her office investigated more than 700 complaints of unlicensed preparers last year. One of the largest enforcement actions was in Santa Ana, where more than 120 unlicensed preparers, most of them operating out of flower shops, shoe stores and food markets in Spanish-speaking neighborhoods, were issued cease-and-desist orders.
“I think most of them did not know they were supposed to be licensed and they saw this was a booming business,” Moffet said, adding that the state had no reason to believe the work being done by these offices was substandard.
The combination of increased IRS scrutiny of taxpayers who lack Social Security numbers, increased competition among so many preparers and the high number of Latinos who file early in anticipation of refunds created an unlikely scene at most of the Spanish-speaking preparation services last week.
While accountants and H&R; Block offices in other parts of town bustled with procrastinators, the staffs of the Ecuamex and San Miguel travel agencies on San Fernando Road sat idle. To drum up business, the Del Valle Insurance Agency offered a free tax preparation with the purchase of a policy. But there were few takers.
“We are at the height of the season right now and there are no people,” fretted Hugo Mauricio Constante, the resident tax preparer at San Miguel travel. “The furniture stores, the beauty salons, maybe they have customers.”
