Opinion

Consumers Need Protection From Fraudulent Tax Preparers

More than half of low-income consumers rely on paid tax return preparers to help them prepare their taxes each year. It is imperative that consumers are able to rely on their tax return preparer to file accurate returns that get them the full refund to which they are entitled.

In 2019, 95.7 million Americans were refunded an average of $2,725 by the IRS. Annual tax refunds are a lifeline for millions of Americans who depend on their yearly refund check to pay the rent, buy groceries and keep the lights on. For many low-income taxpayers, a federal tax refund is the single largest check they receive each year. 

Unfortunately, far too many tax returns get filed despite being riddled with errors due to sloppy or even fraudulent conduct by paid tax return preparers. Just last month, an Arizona court sentenced a tax preparer to three years of probation for fraudulently increasing her fees by filing returns with false itemized deductions. The taxpayers affected by this scam will have to file amended returns and be responsible for the additional taxes due along with interest.

This doesn’t have to happen. The good news is bipartisan groups of lawmakers are trying to help.

This summer, for example, Rep. Jimmy Panetta (D-Calif.) and Rep. Ted Yoho (R-Fla.) introduced the Taxpayer Protection and Preparer Proficiency Act, which would create minimum service standards for paid tax preparers. Rep. Ron Estes (R-Kan.) and Rep. Terri Sewell (D-Ala.) have also introduced legislation that would give the IRS the authority to prevent unethical or fraudulent tax return preparers from filing consumers’ taxes.

These are important policy proposals that should be embraced, as too many consumers are regularly entrusting incompetent professionals to accurately prepare critical filings on their behalf. 

An investigation of tax return preparers by the Government Accountability Office found thousands of dollars in errors. Shockingly, only 10 percent of the return preparers reviewed by the GAO calculated the correct refund amount. In 2015, the IRS identified nearly 20,000 return preparers who are potentially non-compliant with their tax filing and payment obligations. 

What’s more, a 2015 IRS report found that more than 400,000 tax return preparers — 58 percent of all preparers — hold no professional credentials at all. In fact, the IRS is prohibited from requiring tax return preparers to demonstrate even a cursory knowledge of the tax code before they start preparing returns. The courts have found that the IRS does not even have the authority to revoke tax return preparers’ credentials when there is evidence of fraudulent, incompetent or unethical conduct. Given the complexity of the tax code and the important financial infusion a tax refund represents for millions of families, this should concern all taxpayers. 

At a time when it seems like nothing good is coming out of Washington, fixing the broken tax return preparer certification system that deprives too many hard-working taxpayers of their earned refunds is a goal that leaders of every political party should get behind.

 

John Breyault is the Vice President of Public Policy, Telecommunications and Fraud at the National Consumers League and director of NCL’s Fraud.org and #DataInsecurity Project campaigns.

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