Tax season often brings a financial windfall for the country's poorest and most vulnerable residents, who are increasingly preyed upon by unscrupulous tax preparers. In a hearing before the U.S. Senate Finance Committee this week, Internal Revenue Service officials called on legislators to root out fraud, excessive fees and other unsavory practices in the tax preparation industry. But that effort will make little difference this year, as the April 15 deadline for individuals to file is just days away. Taxpayers should seek help from licensed professionals such as certified public accountants, do their taxes themselves or choose a preparer with a solid track record, including government-certified volunteers who can help those who qualify file returns for no charge.
Each year paid tax preparers complete about 80 million individual returns, more than half of all returns filed. The proliferation of preparers — there were 677,000 registered with the IRS by mid March — was spawned by an increasingly complex tax code. That has made taxpayers of all education and income levels nervous about doing their own returns, while the introduction of tax credits such as the Earned Income Tax Credit has drastically increased the number of filers. The creation of electronic tax software also has enabled anyone to offer tax filing services.
Licensed preparers make up only 40 percent of paid tax preparers, according to the IRS. In this environment, dishonest preparers flourish. Many open businesses around tax time and disappear soon after. In one popular scheme, preparers overcharge for tax preparation fees and file the return before clients can protest. Others complete returns in front of clients, adjust them later seeking a higher refund, and pocket the difference. Taxpayers should beware.
In 2010, the IRS launched an initiative to ensure that tax preparers had a base competency in federal tax law and exhibited ethical behavior. The agency required preparers to obtain a tax identification number that would be affixed to all returns. It also required all preparers who were not CPAs, attorneys or enrolled agents to pass a competency exam and complete continuing education classes. But in 2013, a federal district court banned the agency from enforcing the testing and education requirements. As a result, widespread abuse continues.
Congress should step in. Until then, taxpayers in need should take advantage of free programs designed to help them. The government has volunteers at community service centers nationwide who will complete returns for those who qualify based on income, age, disability or language skills. Volunteers can also guide filers through free electronic options. As the clock winds down, the IRS should trumpet those options so the public can fully utilize them.