Audit Finds Problems in Most Tax Returns Done by Chain Preparers

Tax return preparers at commercial chains made mistakes on virtually every tax return prepared at the request of undercover congressional investigators, the auditors said Tuesday.

In 19 visits, the Government Accountability Office asked for assistance from preparers to file returns for two hypothetical families.

Only two of 19 tax returns showed the correct refund amount, but both of those returns included errors. Incorrect refunds on the other tax returns delivered as much as $2,000 extra to some taxpayers but took more than $1,500 from others.

The GAO said it looked at a tiny number of returns prepared by chain tax companies and the findings could not be generalized across the tax preparation industry. More than half of all taxpayers, especially those with complicated tax situations, ask a professional to prepare their returns.

The problems uncovered included bad advice and incomplete reporting:

* Tax preparers correctly recorded wage income but not necessarily side income. In 10 of 19 instances, side income was not reported. Several tax preparers incorrectly advised the undercover auditors that it was up to them to report side income because the IRS would not know about it unless it was reported.

* On half the tax returns prepared for a hypothetical single mother, the preparer said her two children lived with her when the investigator posing as the taxpayer said one lived with a relative. The number of dependent children can affect the earned income and child tax credits.

* Only 2 of 9 returns prepared for a hypothetical plumber and his family correctly reported itemized deductions.

* In none of the tax returns prepared for the single mother did the advisors use child-care expenses to claim the child- and dependent-care credit.

* Tax preparers made numerous errors trying to apply education credits to college expenses paid by the plumber for his child.

The top lawmakers on the Senate Finance Committee said the study indicated that tax professionals should have to meet minimum training and competency requirements before opening for business.

“It’s incredible that we have legal requirements for someone to qualify as a barber to cut your hair, and yet there are no requirements for someone to prepare your taxes,” said Finance Committee Chairman Charles E. Grassley (R-Iowa).

Robert Weinberger, a vice president at H&R; Block, told the committee that the company supported the certification and registration of tax return preparers.