Most Americans Want Paid Preparers to Be Licensed, CFA Finds

Source: AccountingWEB

January 21, 2016

By Terry Sheridan

The vast majority of Americans want paid tax preparers to be tested and licensed, and required to provide an upfront list of their fees, according to a report released on Jan. 20 by the Consumer Federation of America (CFA). 

The report, Public Views on Paid Tax Preparation: Strong Public Support for New Consumer Protections to Prevent Errors and Fraud, reveals that “recent mystery shopper tests have established that tax return errors are a serious problem.” That’s based on the US Government Accountability Office’s (GAO) undercover investigations (i.e., mystery shopping) of 19 randomly selected tax preparer offices in states that do not regulate paid preparers. Of those 19, only two had the correct refund amount on tax returns, according to a GAO study released in 2014. Errors ranged from giving taxpayers $52 less to $3,718 more than they were entitled to receive.

The GAO estimates that approximately 81 million (56 percent) of 145 million individual tax returns were completed by a paid preparer in 2011. The GAO also discovered that paid preparers were used more frequently for complex returns. In 2011, they prepared 59 percent of returns claiming the Earned Income Tax Credit.

According to the GAO, 55 percent of all paid preparers in the United States are not subject to testing or education requirements. The only preparers regulated are tax attorneys, CPAs, and enrolled agents. 
The CFA contracted with ORC International to conduct a phone survey of 1,011 adults living in the continental United States for its report.

Here’s what the poll found: 

  • Forty-nine percent of those surveyed used a tax-preparation company in the past five years.
  • Eighty percent believe paid preparers should pass a government test demonstrating they have the knowledge and training to correctly prepare returns.
  • Eighty-three percent support licensing requirements for paid preparers by a state agency that would also handle complaints and enforce consumer protections, while 59 percent strongly support licensing.
  • Eighty-nine percent would require paid preparers to provide a list of fees upfront. “Tax preparation is a rare industry where prices are often not given upfront before the work is done,” the report states. Prices often are disclosed only when a return is completed. The undercover shoppers discovered fees as high as $500 but also so low they were unrealistic, as well as preparers who refused to give any estimate.
  • Fifty-six percent believe paid preparers don’t need a degree but should have special training. However, 40 percent say preparers should have a degree, and 31 percent believe the degree should be in accounting. 

Four states – California, Maryland, New York, and Oregon – have enacted consumer protections to increase the oversight and competency of paid preparers, according to the CFA report. Those states don’t require fee disclosures, and disclosure requirements were not included in the now-invalidated IRS regulation of tax preparers, the report states.

Model fee disclosures have been proposed by the New America Foundation and the National Consumer Law Center.