Paid Tax Preparers
Most Taxpayers Believe They Benefit, but Some Are Poorly Served Gao ID: GAO-03-610T April 1, 2003In tax year 2000, over half of individual filers paid someone to prepare their tax return. These taxpayers paid an estimated $14.7 billion for individual return preparation. Despite the importance of paid preparers' role in the tax system, little data exist on the quality of the services they provide. In light of this, GAO surveyed and interviewed taxpayers and gathered examples of the range of outcomes experienced by taxpayers who used paid tax preparers.
Based on our on-going work, most taxpayers believe they benefit by using a paid tax preparer. According to the results of our nationwide survey, 77 percent of taxpayers said they were very or generally confident that their preparer completed a tax return that allowed them to pay no more in taxes than was legally required. In addition, the survey showed that 87 percent of taxpayers would use a paid preparer in the future. Despite these facts, taxpayers may not understand the tax laws well enough to accurately assess their preparers' performance. To provide quality service, paid preparers must probe the personal circumstances that could affect the amount of tax their clients owe, such as whether the taxpayers have dependents. For example, one taxpayer took 3 years of prior returns prepared by a friend to a tax preparer. The preparer found that the taxpayer had overpaid his taxes by more than $6,200 because he had overlooked earned income and child tax credits. While most taxpayers expressed confidence in their paid preparers, our survey, studies of filed returns, and interviews with knowledgeable observers suggest that a small percent of taxpayers are poorly served due to problem performance by preparers. For example, GAO's survey results indicated that 5 percent of all taxpayers had no confidence that they had not overpaid their taxes. However, even a small percentage of the more than 71 million users of paid preparers in 2000 can translate into millions of affected taxpayers. Preparers who fail to adequately probe, provide questionable advice, or engage in fraudulent practices can cause serious adverse consequences for their clients. For example, one taxpayer overpaid his taxes for several years by about $3,500 to $5,000, despite receiving notices from the Internal Revenue Service that he may be eligible for the earned income tax credit. When he showed these notices to his paid preparer, the preparer took no action. Paid preparers are not always the cause of problems--taxpayers can provide preparers inaccurate or incomplete information. Despite using a preparer, taxpayers are still ultimately responsible for the accuracy of their return.
GAO-03-610T, Paid Tax Preparers: Most Taxpayers Believe They Benefit, but Some Are Poorly Served
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Testimony:
Before the Senate Finance Committee:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
Tuesday, April 1, 2003:
Paid Tax Preparers:
Most Taxpayers Believe They Benefit, but Some Are Poorly Served:
Statement of James R. White
Director, Tax Issues:
GAO-03-610T:
GAO Highlights:
Highlights of GAO-03-610T, a testimony before the Senate Finance
Committee.
Why GAO Did This Study:
In tax year 2000, over half of individual filers paid someone to
prepare their tax return. These taxpayers paid an estimated $14.7
billion for individual return preparation. Despite the importance of
paid preparers‘ role in the tax system, little data exist on the
quality of the services they provide. In light of this, GAO surveyed
and interviewed taxpayers and gathered examples of the range of
outcomes experienced by taxpayers who used paid tax preparers.
What GAO Found:
Based on our on-going work, most taxpayers believe they benefit by
using a paid tax preparer. According to the results of our nationwide
survey, 77 percent of taxpayers said they were very or generally
confident that their preparer completed a tax return that allowed them
to pay no more in taxes than was legally required. In addition, the
survey showed that 87 percent of taxpayers would use a paid preparer in
the future. Despite these facts, taxpayers may not understand the tax
laws well enough to accurately assess their preparers‘ performance. To
provide quality service, paid preparers must probe the personal
circumstances that could affect the amount of tax their clients owe,
such as whether the taxpayers have dependents. For example, one
taxpayer took 3 years of prior returns prepared by a friend to a tax
preparer. The preparer found that the taxpayer had overpaid his taxes
by more than $6,200 because he had overlooked earned income and child
tax credits.
While most taxpayers expressed confidence in their paid preparers, our
survey, studies of filed returns, and interviews with knowledgeable
observers suggest that a small percent of taxpayers are poorly served
due to problem performance by preparers. For example, GAO‘s survey
results indicated that 5 percent of all taxpayers had no confidence
that they had not overpaid their taxes. However, even a small
percentage of the more than 71 million users of paid preparers in 2000
can translate into millions of affected taxpayers. Preparers who fail
to adequately probe, provide questionable advice, or engage in
fraudulent practices can cause serious adverse consequences for their
clients. For example, one taxpayer overpaid his taxes for several years
by about $3,500 to $5,000, despite receiving notices from the Internal
Revenue Service that he may be eligible for the earned income tax
credit. When he showed these notices to his paid preparer, the preparer
took no action.
Paid preparers are not always the cause of problems”taxpayers can
provide preparers inaccurate or incomplete information. Despite using a
preparer, taxpayers are still ultimately responsible for the accuracy
of their return.
What GAO Recommends:
GAO is not recommending executive action. However, GAO identified
guidance from various sources suggesting common sense steps taxpayers
can take when choosing or working with a paid tax preparer, such as:
* When searching for a preparer, obtain recommendations from people you
trust.
* Check out your preparer‘s qualifications.
* Make sure you understand the services you will be getting, how much
they cost, and how they will benefit you.
* Make sure your preparer understands your personal circumstances and
reviews your official tax documents.
* Review your completed return before you sign it.
www.gao.gov/cgi-bin/getrpt?GAO-03-610T.
To view the full testimony, including the scope and methodology,
click on the link above. For more information, contact Jim White at
(202) 512-5594 or WhiteJ@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss our on-going study of paid tax
preparers. The Internal Revenue Service (IRS) estimates that there were
up to 1.2 million paid tax preparers in 1999. These paid preparers are
important to taxpayers, as underscored by the fact that in tax year
2000, over half of the 130 million individual filers paid someone to
prepare their tax return. Taxpayers paid an estimated $14.7 billion for
individual return preparation. Numbers like these suggest that
taxpayers believe that paid preparers provide a valuable service.
Given the complexity of the tax code, it is easy to understand why so
many taxpayers depend on the assistance of a paid preparer. The need
for the assistance of a paid preparer, combined with the fact that our
tax system relies on taxpayers accurately completing and filing their
returns, means that paid preparers play a critical role in the
functioning of the nation‘s tax system.
Despite the importance of paid preparers, minimal data exist on the
quality of services they provide. However, there are indications that
some preparers make errors on taxpayers‘ returns that can result in
taxpayers overpaying or underpaying their taxes. For example, last year
we estimated that over 2 million taxpayers overpaid their 1998 taxes by
$945 million because they claimed the standard deduction when it would
have been more beneficial to itemize.[Footnote 1] Half of these
taxpayers used a paid preparer. While taxpayers undoubtedly contributed
to some of these errors, these data raise questions about the extent of
errors caused by paid preparers.
In light of the importance of paid preparers to the functioning of our
tax system and the lack of information about the quality of service
they provide, you asked us to (1) obtain the views of taxpayers who
used paid preparers and provide examples of paid preparer performance,
including the type and what is known about the extent of problems
caused by paid preparers and (2) identify common sense steps taxpayers
can take to help ensure that they benefit from using a paid preparer.
My statement today is based primarily on a nationwide representative
survey of taxpayers; in-depth interviews with a judgmental sample of
taxpayers regarding their experiences with paid preparers; phone calls
to a limited number of preparers in which we posed as potential clients
asking about services and fees; interviews with large and small tax
preparation firms, IRS‘s National Taxpayer Advocate, IRS officials, and
several tax clinics offering tax help to low income taxpayers; and a
review of IRS‘s closed case files on preparers investigated for fraud
or other misconduct.
Anyone can be a paid tax preparer. No laws or regulations limit who can
sell tax preparation services. The types and training of paid preparers
vary widely. They range from attorneys and certified public accountants
(CPA) to preparers who are not licensed and have no formal training.
Commercial preparers may hire any of these and may also provide their
own training. However, IRS does place limits on paid preparers who can
represent taxpayers in matters before IRS. Those representing taxpayers
are collectively referred to as practioners and can be attorneys, CPAs,
and enrolled agents--that is, former IRS employees or individuals
tested in tax laws. All others are referred to as ’unenrolled agents.“
Practioners are governed by IRS Circular 230 regulations that prescribe
standards of conduct and sanctions for violating the standards.
In summary, our work to date shows a range of paid preparer
performance:
* Most taxpayers who used a paid preparer believe they benefit by doing
so. In addition, most taxpayers reported that they did not pay more in
taxes than was legally due and that their preparer knew enough about
their personal tax situations to accurately prepare their returns. Paid
preparers told us that asking probing questions about their clients‘
personal circumstances or seeing documentation of income and potential
deductions were important components of providing quality services.
* However, some taxpayers using a paid preparer end up overpaying their
taxes or preparer or underpaying their tax liability because some
preparers did not adequately probe into or pay attention to taxpayers‘
personal circumstances, made computational errors, provided
questionable advice, or, in rare cases, engaged in fraudulent
activities.
* Our work also shows that despite the use of paid preparers, taxpayers
are ultimately responsible for the accuracy of their tax returns.
Taxpayers can take some common sense steps to ensure they benefit from
using a paid preparer, including providing complete and accurate
information to their paid preparers.
Most Taxpayers Are Confident They Benefit from Using Paid Preparers:
Taxpayers choose to use paid preparers for a variety of reasons. Many
of the taxpayers we spoke to told us they used a paid preparer because
they did not understand the tax laws. One taxpayer, for example, said
she began using a paid preparer 9 years ago to help her with estate tax
issues following the death of her father. Other taxpayers said they
lacked the time or patience to complete their return on their own. For
example, a mother of four who operates her own business part-time and
is finishing her degree at night said she simply does not have the time
to do her own taxes. Other taxpayers stated that they paid someone to
prepare their taxes in hopes of obtaining a larger and/or quicker
refund.
Most taxpayers who used a paid preparer believe they benefit from doing
so. We estimate, based on our representative sample of taxpayers, that
77 percent of taxpayers who used a paid preparer are very or generally
confident that they did not pay more in taxes than was legally
required, as shown in figure 1. In addition, based on our survey
results, we estimate that 87 percent of taxpayers would use a paid
preparer in the future.
Figure 1: Paid Preparer Users‘ Confidence That They Did Not Overpay
Their Taxes:
[See PDF for image]
Note: The estimates have a 95 percent confidence interval of plus or
minus 5.23 percent or less.
[End of figure]
A word of caution about our survey: it reflects taxpayers‘ perceptions
and may overstate the quality of service paid preparers are providing.
Most of the taxpayers we talked to in-depth said they used a paid
preparer because they found IRS tax forms and documents too complicated
or they were confronting an unusually complicated tax situation. Thus,
the taxpayers in our survey may not understand the tax laws well enough
to evaluate the performance of their paid preparers. Evidence that some
taxpayers who used preparers overpaid or underpaid their taxes also
suggests that taxpayers confronted by complicated IRS forms and a
confusing tax code may be unable to identify errors made by preparers.
For these reasons, the percentage of taxpayers who were confident they
did not overpay their taxes may be overstated. There are no reliable
data on the extent of the overstatement.
Despite this caveat, paid preparers can benefit their clients in
several ways. First, probing about taxpayers‘ personal circumstances
can help paid preparers ensure their clients do not overpay or underpay
their taxes. Paid preparers told us they use a variety of techniques,
including personal interviews and questionnaires, to get information
about their clients‘ dependents, mortgages, other deductible expenses,
or asset sales. Some paid preparers maintained contact with their
clients during the year, allowing them to become intimately aware of
the financial issues facing their clients and to make meaningful
suggestions to reduce future liabilities. Based on our survey results,
taxpayers were very confident that their preparer did sufficient
probing or took other steps to ensure an accurate return. We estimate
that about 91 percent of taxpayers believe their preparers had enough
information about their personal circumstances to accurately prepare
their tax returns, as shown in
figure 2.
Paid preparers also can benefit their clients by reviewing income and
expense documentation. To do this, most of the preparers we talked to
said they ask their clients to provide documentation to support claimed
income, deductions, and credits, such as W-2 forms from employers or
1099 forms from financial institutions. Taxpayers in our survey
confirmed that this is a common practice. We estimate that 88 percent
of paid preparer users were asked for supporting documentation, as
shown in figure 2.
Figure 2: Client Perceptions on Aspects of Paid Preparer Performance:
[See PDF for image]
Note: The estimates have a 95 percent confidence interval of plus or
minus 5.23 percent or less.
[End of figure]
Another way paid preparers can benefit their clients is educating them
about the tax laws. Such efforts can help ensure taxpayers neither
overpay nor underpay their taxes and may promote overall compliance.
For example, one preparer who works primarily with immigrants said he
and his staff spend considerable time explaining to their clients that
paying taxes is part of the civic responsibilities they assumed in
immigrating to this country. Other preparers told us they often have to
educate taxpayers on more complex concepts, such as computing the
basis, or the investment made in a property for tax purposes, to
determine how much of a real estate sale would be taxable. Another
preparer told us he found that a taxpayer had overpaid his taxes by
more than $6,200 over a 3-year period because the taxpayer had
overlooked earned income and child tax credits. Still, another preparer
told us he helped a taxpayer receive a refund in excess of $19,000 when
he found out that the taxpayer, who had moved twice in less than 2
years, had missed out on deductions for moving expenses due to job
relocations.
Paid preparers are also required by law to take certain steps when
filling out returns for their clients, including signing the return and
giving their clients copies of the completed returns. We estimate that
a vast majority of paid preparers signed and provided their clients a
copy of their return, as shown in figure 2.
Evidence Suggests That a Small Percentage of Taxpayers Are Poorly
Served Because of Problematic Preparer Performance:
A variety of evidence shows that some taxpayers are poorly served by
their paid preparers. The available evidence does not allow a precise
estimate of the percentage of taxpayers affected, but none of it
suggests that the percentage is large. However, even a small percentage
of the over 71 million users of paid preparers in 2000 can translate
into millions of affected taxpayers. Furthermore, the consequences for
these taxpayers may be significant. They may overpay their taxes,
overpay their preparers, or underpay their taxes and be subject to
penalties and interest.
A Variety of Evidence Suggests That a Small Percent of Taxpayers Are
Poorly Served by Their Preparer:
Surveys of taxpayers, studies of filed returns, and interviews with
knowledgeable observers all show that some taxpayers are poorly served
by their paid preparer. We estimate that 5 percent of paid preparer
users had no confidence that they had not overpaid their taxes, and
another 7 percent had little confidence, as shown in figure 1. These
results echo a 1997 Consumer Reports nonrandom survey of 26,000 of its
readers, in which 6 percent said they discovered an error made by their
preparers. Because these surveys are based on taxpayers‘ perceptions
and ability to identify preparer errors, they may underestimate the
extent of the problem. However, there is no evidence about the size of
the underestimate.
Studies of filed returns also suggest that a small percentage of paid
preparer users are poorly served. For example, we estimate that over 1
million of about 67 million taxpayers who used a paid preparer in 1998
may have overpaid their taxes by claiming the standard deduction when
they would have been better off itemizing. Similarly, a January 2003
report by the Treasury Inspector General for Tax Administration
estimated that there were approximately 230,000 returns filed by paid
preparers in tax year 2001 where taxpayers appeared eligible for but
did not claim the additional child tax credit. In addition, a 2002 IRS
study of earned income tax credit returns for tax year 1999 estimated
over-and under claims of $11 billion and $710 million, respectively.
IRS reported that paid preparers filed more than 65 percent of all
earned income credit returns. It is not clear how many of the over-or
underpayments in these examples are the fault of the preparer and how
many are the fault of the taxpayer. It seems likely that preparers bear
responsibility for at least some of the over-or underpayments. But,
taxpayers could be at fault if they provide the preparer with incorrect
or incomplete information.
Knowledgeable observers confirmed that some taxpayers are poorly served
by paid preparers. For example, in the fiscal year 2002 annual report,
IRS‘s National Taxpayer Advocate recommended requiring minimal levels
of competency for paid preparers in order to better serve taxpayers and
improve compliance. In another example, an IRS official responsible for
overseeing the local paid preparer penalty program told us that based
on the problems that he has seen and the amount of penalties he has
issued, he believes poor service is more common among unlicensed
preparers.
Overall, the evidence from taxpayer surveys, studies of filed returns,
and knowledgeable observers demonstrates that some taxpayers are poorly
served by their preparers. The evidence does not allow a precise
estimate of this problem. The only representative information
available--from taxpayer surveys---suggests that a small percentage of
taxpayers perceive problems with their preparers. However, even a small
percentage of all taxpayers who use preparers equates to millions of
people.
Problematic Preparer Actions and Inactions Result in Poor Service to
Taxpayers:
Paid preparers can poorly serve taxpayers through a variety of
problematic actions and inactions. For example, preparers may fail to
adequately probe and understand taxpayers‘ personal circumstances. We
estimate that 3 percent of users did not believe that their preparer
had enough information to accurately complete their return. Such lack
of probing could explain the examples of taxpayers overpaying or
underpaying their taxes.
A more egregious example is ignoring known information about a
taxpayer‘s personal circumstances. In one instance, a paid preparer
told us of a disabled taxpayer with limited English skills who overpaid
his taxes by about $3,500 to $5,000. The taxpayer had received notices
for several years from IRS stating he might be eligible for the earned
income tax credit. Each year, he took the notices to his preparer but
the preparer took no action. Eventually he changed preparers and his
new preparer is working to amend the returns.
Other lapses are less severe because they are caught and corrected by
IRS and account for a small percentage of returns completed by paid
preparers. For example, in tax year 2000, IRS identified 357,000
computational errors on returns filed by paid preparers.
Some preparers provide questionable advice, which could contribute to
taxpayers owing additional taxes, interest, and penalties. For example,
one paid preparer told us of another preparer who set up certain
trusts, claiming that the trusts were legitimate tax shelters. IRS
later determined that the shelters were not legitimate. We do not know
whether the taxpayer was complicit with this scheme; however, the
taxpayer, a successful businesswoman, now owes a large amount of tax.
In a related example, another paid preparer advised a married couple
with two children that it was appropriate to file two tax returns with
each claiming the head of household status, claiming one child, and
receiving the earned income tax credit. The adjustments made to the
taxpayers‘ accounts in subsequent examinations resulted in a bill in
excess of $4,000, which the taxpayers have no means to pay.
In extreme cases, some preparers engage in clear-cut fraud. Identified
instances of fraud are rare--IRS recommended prosecution on 162 cases
in calendar years 2001 and 2002. However, the consequences for
taxpayers and the government can be severe. For example, one preparer,
who was a former police officer, cost the Treasury about $1.1 million.
After providing clients with copies of their tax returns, this preparer
altered the returns, adding fraudulent dependents, child credits, and
earned income credits. The preparer filed all returns electronically,
keeping part of the refunds as a fee, unbeknownst to some clients. The
clients received the remainder of their refunds, which were inflated by
an average of $1,860. The IRS audited almost 700 of this preparer‘s
returns, with many clients owing additional taxes and interest for
multiple years. The preparer was ordered to pay $342,446 in restitution
to the IRS, but this did not help clients pay their back taxes.
Eventually, this preparer was sentenced to 51 months in prison.
In another example, one paid preparer told his elderly client to
provide him with the checks to make her quarterly estimated payments.
Although he claimed these payments on the client‘s tax return, he never
gave the checks to IRS--he kept them for himself. After receiving
notices from IRS, the taxpayer visited the paid preparer who told her
that IRS must have made a mistake. The preparer is now in jail.
Problematic preparer behavior may not always result in taxpayers over-
or underpaying their taxes, it may also result in taxpayers overpaying
for services they do not understand. Preparers offer packages of
services geared toward accelerating the receipt of refunds, a service
that can be particularly appealing to low income taxpayers who often
want or need their refunds quickly. These packages typically include
electronic filing and Refund Anticipation Loans (RAL). RALs are short-
term loans arranged by preparers, issued by financial institutions, and
secured by a taxpayer‘s refund. After the return is filed
electronically, the preparer is notified by IRS whether or not the
taxpayer has outstanding tax debts or selected other debts (e.g.,
student loans, child support). If the RAL is approved, the taxpayer
receives the loan and his or her refund is directly deposited into the
preparer bank account. Taxpayers who buy these services can get a loan
on their refund in 0 to 2 days, while taxpayers who file electronically
receive their refund in 10 days. Although some people are willing to
pay for the faster services, advertisements that promote RALs or large
refunds, such as those excerpted in figure 3, may leave taxpayers
confused about the benefits of the services they are purchasing.
Figure 3: Excerpts of Preparer Advertisements for Large or Accelerated
Refunds:
[See PDF for image]
[End of figure]
These advertisements were not selected to represent the entire
industry. However, two tax clinic directors told us that some preparers
do not always explain the full costs of the services. Specifically,
some taxpayers are confused about the cost associated with RALs,
alternatives to using RALs, and the related interest costs.
Consequently, taxpayers cannot always weigh the cost of the service
against the benefits that they might receive.
Based on information we gathered, fees for these packages vary widely.
For example, while some preparers charge nothing for electronic filing
services, one preparer we spoke to (while we were posing as a potential
client) said he would charge us between $210 and $250 to file
electronically. Another preparer said he would charge $130 for a RAL on
a $1,200 refund due, which equates to an annual interest rate of about
400 percent. In another example, one preparer said he would charge $174
for a RAL on a $700 refund due, which equates to an annual interest
rate of over 900 percent. These examples are not representative of all
preparer fees; the exact amounts of preparer fees for accelerated
refunds depend on various individual circumstances, such as the
financial institution the preparer uses to finance the loan and the
amount of refund due.
Yet, such fees can significantly reduce the refund a taxpayer receives.
One tax clinic director informed us of a disabled taxpayer who was due
a refund of $1,230 on a simple return. After paying various fees, such
as return preparation and a RAL, she received a check from her preparer
for $414--about 34 percent of her expected refund. Taxpayers are using
these refund acceleration services in increasing numbers. Based on IRS
data, the National Consumer Law Center estimates that 12.1 million
people received a RAL in 2001, up from 10.8 million in 2000. Taxpayers
paid $907 million for these services in 2001, up from $810 million in
2000.
Another form of overpayment is purchasing services that may not be
needed. In an interview with an IRS employee, we learned of a taxpayer
who, for 2 years, went to a large tax preparer and paid about $200 for
returns that were not required to be filed. The elderly taxpayer‘s sole
income came from Social Security and a small pension--about $6,000 per
year--and was below filing thresholds.
Although IRS is not responsible for ensuring the quality of service
paid preparers provide, it does have the authority to monitor and take
action against paid preparer misconduct. Specifically, there are three
key offices with a responsibility for detecting and taking action
against cases of paid preparers misconduct: (1) the Office of
Professional Responsibility, which sanctions attorneys, CPAs, and
enrolled agents for ethical or conduct violations; (2) Examination,
which assesses penalties to any paid preparer for violations discovered
during an audit; and (3) Criminal Investigation, which prosecutes
preparers for fraudulent or other criminal activities. IRS has taken
action against some preparers. For example, according to IRS,
Examination issued 987 penalties totaling over $4 million in fiscal
years 2000 and 2001. Additional information on programs administered by
these offices will be included in our follow-up report, which is
planned for issuance this summer.
Taxpayers Can Take Steps to Help Ensure They Benefit from Using a Paid
Preparer:
Without paid preparers‘ expertise, many taxpayers would be unable to
submit accurate tax returns. However, taxpayers who use a paid tax
preparer are still responsible for the accuracy of their return.
According to the law, taxpayers take responsibility for the accuracy of
their returns when they sign them. Even if the preparer is at fault, it
is the taxpayer who is ultimately responsible for any additional tax,
interest, and/or penalties.
Paid preparers are not always the cause of the problems discussed in
this statement. Taxpayers can contribute to these problems in several
ways. Paid preparers told us that they rely heavily on their clients‘
oral statements and documentation to complete tax returns. Paid
preparers take various steps to ensure that the tax returns they
complete are accurate, such as probing about personal circumstances and
reviewing income and expense documentation. However, the effectiveness
of such steps depends, in part, on the taxpayer. If taxpayers provide
inaccurate or incomplete information about, for example, their social
security or if they do not keep tax documents, such as wage or interest
statements, preparers cannot complete an accurate return. Also, some
taxpayers wait until the last minute to have their taxes prepared,
which may limit the preparers‘ opportunity to probe.
IRS and other organizations, such as the American Bar Association and
the Better Business Bureau, have produced guidance for taxpayers for
selecting and working with paid preparers. Some of the most common
advice from these organizations is shown in figure 4.
Table 1: Precautions to Take When Using a Paid Tax Preparer:
* When searching for a preparer, get recommendations from friends, co-
workers, or other trusted people. Find out if you qualify for free
services.;
* Interview the preparer before hiring to check out qualifications,
experience, discipline problems, and any history of complaints.;
* Be sure you understand other services you will be getting, such as
electronic filing or Refund Anticipation Loans. Find out whether these
services are optional, what they will cost, and how they will benefit
you.;
* Don‘t hire a preparer who guarantees a refund before seeing
your tax documents or whose fee is a percentage of your refund.
* Make sure your preparer understands your personal circumstances,
income, and expenses. Show your official tax documents to your
preparer, including W-2‘s and 1099s.;
* Review your completed return before you sign it. Check that your
tax information is correct. Even though someone else completed it, you
are responsible for the accuracy of every item on your return.;
* Don‘t sign a blank return and don‘t sign in pencil.;
* Make sure your preparer‘s signature and tax identification number
are on the return before you submit it. Keep a copy of the final
return.;
* Don‘t make checks for taxes due payable to preparers. Checks should
be made payable to the United States Treasury..
Source: Internal Revenue Service, Tax Topic 254 - How to Choose a Paid
Tax Preparer (Washington, D.C.); American Bar Association Section of
Taxation, Tips for Filing Your Return with a Tax Preparer (Washington,
D.C.); Better Business Bureau, Tax Preparers, (Arlington, VA); and
Internal Revenue Service, 1040 Instructions (Washington, D.C., 2002).
[End of table]
These precautions can help taxpayers avoid some of the problems we
identified, such as overpaying their taxes or other more serious
consequences, such as delinquent taxes, interest, and penalties owed to
the Treasury.
Mr. Chairman, this completes my prepared statement. At this time, I
would be happy to address any questions the Committee may have.
GAO Contacts:
Jim White, (202) 512-5594
Jonda Van Pelt, (415) 904-2186:
Acknowledgments:
In addition to those named above, Vincent Balloon, Larry Dandridge,
Katherine Davis, Michele Fejfar, Tre Forlano, Evan Gilman, Brittni
Milam, Libby Mixon, Cheryl Peterson, Peter Rumble, and Kathleen Seymour
contributed to this report.
FOOTNOTES
[1] Tax Deductions: Further Estimates of Taxpayers Who May Have
Overpaid Federal Taxes by Not Itemizing (GAO-02-509, March 29, 2002).
