It won't take very long for April 15 to roll around, and with it the annual rush to get state and federal tax returns filed on time. And as each year passes, it seems the process becomes more and more complicated.
Most taxpayers have a couple of things in common: to pay the least possible in taxes and get the biggest tax refund possible.
Unfortunately, those two objectives can potentially lead to some serious complications.
“Every filing season, scam artists lure victims in by promising outlandish refunds," said John Koskinen, commissioner of the Internal Revenue Service. "Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund.”
A new report, “Protecting Consumers at Tax Time,” has been released by a consortium of consumer groups headed by the Consumer Federation of America. It details the challenge consumers face trying to pick a paid tax provider, and efforts to expand rules and regulations for preparers.
California is one of just four states to enact laws to regulate the practice of tax preparation. The state requires preparers to have earned 60 hours of qualified instruction within the previous 18 months, and undergo an additional 20 hours of training annually.
“Transparency of pricing, minimum training and competency standards, regulation of credit products and a prohibition on junk fees represent the key components of meaningful reform,” said Michael Best, policy advocate at CFA.
An estimated 60 percent of tax returns are completed by a paid preparer. However, multiple rounds of mystery-shopper tests of tax preparers found instances of incompetence and even fraud -- and it appears the problem is getting worse.
The CFA report found 24 percent of returns in a 2008 test; 44 percent of returns in 2011 found potentially expensive errors and omissions.
In 2014, the Government Accountability Office sent undercover investigators to 19 randomly selected preparer offices. Only two of 19 of the returns had the correct refund amount; others ranged from giving taxpayers $52 less to $3,718 more than they were allowed.
“Taxpayers with incorrectly prepared returns face harsh penalties and may even lose the ability to claim the earned income tax credit for up to 10 years,” said Chi Chi Wu, staff attorney at the National Consumer Law Center.
The first line of defense for taxpayers using a preparer is to make sure they have the proper credentials.
The IRS issues a preparer tax identification number authorizing them to prepare federal tax returns. However, the mere fact the preparer has a PTIN does not guarantee any level of expertise, skill or education.
Depending on the needs of the taxpayer, it might be appropriate to seek out the assistance of an enrolled agent, certified public accountant or attorney.
While the IRS has the ability to require tax preparers to have a PTIN, it does not have the ability to regulate preparers.
In February 2014, the D.C. Court of Appeals held that the IRS lacks the authority to regulate those who help taxpayers file returns. As a result, the IRS has a voluntary standard used in a searchable database for consumers.
“For the sake of everyone involved -- the millions of hardworking taxpayers, thousands of competent and honest tax professionals, and taxing agencies -- we need to pass reasonable reforms and protections in the tax-preparation industry,” said Ross Yednock, of the Economic Impact Coalition.