NCLC report is rather rattling, beware
You may want to think twice before hiring a tax preparer to file your taxes this year. According to an undercover report by the National Consumer Law Center (NCLC), many unregulated tax preparers are incompetent when it comes to sorting through the complicated IRS paperwork required to file income taxes. What’s worse – tax preparers often knowingly file inaccurate information.
Anticipating such problems, in 2011 the IRS began requiring tax preparers who were not Certified Public Accountants to register and complete tests proving they were capable of filing taxes accurately. As you might expect, tax preparers appealed the case in federal court in 2014, and surprisingly, won the right to continue helping customers prepare their taxes.
Secret shoppers posed as tax filers… uh oh
The NCLC recently employed secret shoppers to pose as tax filers in 29 test cases in Florida and North Carolina. They found that all but two of the tests resulted in inaccuracies on the tax returns.
Secret shoppers acting as single parents with partial custody of minors were told eight out of fifteen times that they should claim their child as a dependent to earn a $2,523 earned income tax credit, even though this is inaccurate and illegal. It appears that seven of the eight tax preparers were aware that they were illegally misreporting information, and did it anyway. In another test, 12 of 15 tax preparers omitted an $800 side income, even though they were aware of it.
In another test, 10 of 14 tax preparers failed to file income from a paid internship on the Schedule C form, resulting in an omission of $1,300.
Forgery, errors, and fraud
From the 29 test cases, there were several examples of signature forgery, or of one preparer assisting the customer to fill out the forms, while a different preparer signed them.
“To see this level of errors is extremely disturbing,” according to Chi Chi Wu, a staff attorney at NCLC.
While many of the inaccuracies seemed to help the customer save money or earn a higher tax return, it is important to note that such practices are illegal, and that, should you be audited, it is you, not the tax preparer, who will have to answer to the law.