April 4, 2006

Tax preparers make many mistakes: study

WASHINGTON (Reuters) - Professional tax preparers make
significant errors on returns and often charge the taxpayer
more than the client had been told to expect, according to a
government study released on Tuesday.

The study by the Government Accountability Office was a
very limited one, involving 19 outlets of commercial chain tax
preparers in one major metropolitan area. But lawmakers said it
was a red flag about the tax return industry.

Senate Finance Committee Chairman Charles Grassley, an Iowa
Republican, said "bad practices" appear to be "pervasive and
systemic in the industry."

GAO investigators presented the tax preparers with
fictional, but plausible and not overly elaborate, tax
scenarios. Most of the returns ended up wrong -- sometimes
inflating the refund for the taxpayer by as much as $2,000 and
sometimes costing the taxpayer up to $1,500 in overpayment.

More than half did not report cash business income, the
study said. Several ignored rules for child eligibility for a
low-income tax credit. They ignored tax benefits for education,
and did not claim eligible deductions.

The GAO also found that some preparers either did not offer
a cost estimate, said the price would depend on what forms were
used, or charged very high rates for speedy refunds. Taxpayers
might end up paying for certain services "without understanding
their costs and benefits," the GAO said.

These were commercial tax preparation chains, not certified
public accountant offices.

"The results were shocking," said Montana Democrat Max
Baucus, the top Democrat on the committee. "They made up their
own facts. And they made up their own tax laws."

According to the GAO, more than half the nation's taxpayers
use a paid preparer and the number is rising.