Dive Brief:
- Most paid tax preparers lack requirements for educational standards or professional testing, opening the way each year for billions of dollars in illegitimate tax credit claims and subjecting taxpayers to the risk of audits and penalties, the Government Accountability Office said.
- Paid tax preparers without professional credentials — or 58% of all paid preparers — tend to make errors at a higher rate than taxpayers who prepare their own returns or credentialed tax preparers such as certified public accountants or attorneys, the GAO said in the report released Tuesday.
- “When paid preparers make errors, taxpayers may overpay and lose out on tax benefits,” the GAO said. “Alternatively, when preparers understate tax liabilities, taxpayers may be subject to penalties and the government may collect less revenue.”
Dive Insight:
Efforts in Congress to pass legislation holding all tax preparers to clear federal standards have repeatedly fizzled out. Most recently such requirements were excluded from the One Big Beautiful Bill Act signed into law in July.
Opponents for requiring tax preparers to hold uniform credentials say such regulation would load small tax preparation offices with undue burdens and drive them out of business, thereby favoring the interests of large tax preparation companies.
Advocates for such standards say that incompetent or fraudulent preparers prey on low-income taxpayers and file bogus returns that generate unwarranted penalties.
“Americans trust that tax preparers will be honest and thorough with their work,” Representative Greg Steube, R-Fla., said in November when introducing a bill aimed at ensuring the proficiency of preparers.
“When that trust is betrayed, it can have catastrophic consequences for the families and small businesses that depend on their services,” Steube said.
Non-credentialed tax preparers show clear patterns of errors in tax returns, according to the National Taxpayer Advocate, an office within the IRS.
For example, in fiscal year 2023, 33.5% of payments under the Earned Income Tax Credit, or $21.9 billion, were estimated to be improper, the NTA said. Non-credentialed preparers filed returns accounting for 96% of the total dollar amount of audit adjustments, the NTA said.
“While many non-credentialed return preparers are competent and ethical, the absence of federal oversight allows unscrupulous or unqualified preparers to make costly mistakes or even perpetuate fraud with only minor consequences,” the NTA said.
“For taxpayers, the consequences of such practices can be severe, ranging from unclaimed tax benefits to audits and penalties resulting from erroneous or fraudulent returns,” according to the NTA.
The IRS seeks to curb errors and malfeasance by paid preparers by urging them to improve performance through warning letters and with phone calls and visits by agency staff, the GAO said. It also pursues civil and criminal investigations of abusive tax schemes.
As in 2014 and 2022, the GAO in its report recommended that Congress give the IRS authority to establish uniform standards for paid preparers and set security requirements for their information systems.
