The IRS Isn’t Regulating Most of the People You Pay to File Your Taxes

J Pat Carter/AP

A majority of “preparers” who help individuals file their taxes are not regulated by the Internal Revenue Service, according to a new report, and they are often putting filers at risk by submitting incorrect returns.

Tax preparers are either “enrolled” -- generally meaning they are certified to some degree -- or “unenrolled.”  About 55 percent of paid preparers are unenrolled, according to the Government Accountability Office audit. The IRS attempted to regulate the unenrolled preparers in 2009, but a federal court said it did not have the authority to do so, a decision that was upheld in the U.S. Court of Appeals in February.

Here is a flow chart to demonstrate the types of preparers:

As the chart shows, 56 percent of tax filers in 2011 used the unenrolled preparers. GAO sent undercover auditors to 19 of these preparers and presented them with a variety of scenarios to test their accuracy in filing taxes. In this sample, just 2 of 19 -- or 11 percent -- of the tax professionals calculated the correct number for the individual’s tax return. The preparers’ errors included not counting non-salary income such as tips, claiming ineligible children for the Earned Income Tax Credit and not asking questions they were legally required to ask of the filer.

These mistakes, which ranged from telling individuals they owed $52 less than they actually did to getting a refund of $3,718 more than they were entitled to, put both the preparers and the filers “at risk of IRS enforcement action,” GAO said.  

“Taxpayers rely on paid preparers to provide them with accurate, complete, and fully compliant tax returns,” GAO wrote in its report. “However, tax returns prepared for us in the course of our investigation often varied widely from what we determined the returns should and should not include, sometimes with significant consequences.”

While GAO conceded the sample was limited and not necessarily representative, auditors provided data to back up their findings. The IRS’ National Research Program found from 2006 through 2009, unenrolled preparers made errors 60 percent of the time. This outpaced even individuals who filed their own returns, just half of whom made errors.

Tax filers pay a significant price tag for these flawed returns; the sample of preparers charged GAO between $160 and $480 for their services.

President Obama proposed in his fiscal 2015 budget blueprint to provide the IRS statutory authority to investigate and regulate the unenrolled preparers. Just four states currently do so on their own, and in the state with the strongest regulations -- Oregon -- mistakes on tax returns occur less frequently, according to GAO.  

“Providing IRS with the necessary authority for increased oversight of the paid preparer community will help promote high-quality services from paid preparers, will improve voluntary compliance, and will foster taxpayer confidence in the fairness of the tax system,” the auditors wrote. 

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

    Download
  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

    Download
  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

    Download
  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

    Download
  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

    Download
  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

    Download
  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.

    Download

When you download a report, your information may be shared with the underwriters of that document.