Commercial tax services responsible for errors By Lynnley Browning  NEW YORK TIMES NEWS SERVICE September 14, 2008 Nearly two out of three commercial tax preparers who are not registered with the IRS – the majority of all tax preparers – failed to fill out accurate federal returns for their clients during a small clandestine survey last spring, a government report said last week. The report, by the independent oversight arm of the Internal Revenue Service, covered only those paid preparers who are not enrolled with the IRS.   Tax preparers are not required to be licensed or to enroll with the IRS, and there are 300,000 to 600,000 who are not, according to an estimate in 2003 by a separate agency, the National Taxpayer Advocate. There are no national certification standards for tax preparers, and anyone, regardless of their training, knowledge or credentials, can prepare returns for a fee. By contrast, about 41,000 preparers – typically certified public accountants or financial planners, tax lawyers and actuaries – have taken exams and undergone training that allow them to enroll with the IRS as preparers or agents. The report said that about two in three of the inaccurate returns underpaid the IRS by claiming improper deductions or refunds. The remaining one in three caused the taxpayer to overpay or receive a smaller refund than was owed. Some of the inaccurate returns were because of willful wrongdoing by the tax preparer, moves that can subject the preparer to fines from the IRS. But nearly twice as many of the mistakes arose from the preparer's lack of knowledge of the tax code or mistakes like typographical errors. The report was done by the Treasury Inspector General for Tax Administration, the independent oversight arm of the IRS. Agents posing as taxpayers solicited and paid for returns at a small sample of 28 unregistered preparers – 16 of them at small mom-and-pop shops and 12 at chains. In 2007, commercial preparers, both enrolled and not enrolled, processed 83 million individual tax returns. Nonprofit and government sponsored entities also prepare returns. While unregistered preparers typically operate out of mom-and-pop offices in local neighborhoods, they are also found at tax-preparation chains like Jackson Hewitt. They charge lower fees and typically serve lower-income people. Cracking down on incompetent or abusive tax preparers is a crucial part of the IRS's strategy to help close the tax gap, which is the difference between what taxpayers owe and what they actually pay. The IRS estimates the tax gap to be $290 billion and says that two-thirds of that figure is because of inaccurate tax returns filed by individuals, not by corporations. The IRS, in a response included in the report, said it was studying the feasibility of regulating preparers by assigning them identification numbers for use in tracking the quality of their returns. It said that it might enact such a system by June 2010.

They Make Tax Laws But Don't Do Taxes Many Lawmakers On Tax-Writing Panel Don't Prepare Their Own WASHINGTON, April 17, 2006 (AP) When it comes to their own tax returns, many members of Congress who specialize in writing tax laws turn to professional preparers rather than completing the paperwork themselves. "It's onerous and everybody knows it," said Rep. Richard Neal, D-Mass. Three of the four top lawmakers on the Senate Finance and House Ways and Means committees, which are in charge of writing tax laws, pay a professional to file their annual tax returns with the Internal Revenue Service. The exception is the Ways and Means chairman, Rep. Bill Thomas, R-Calif. The former college professor said he has prepared his own return "forever" and that he waits until close to the deadline to file. Monday is the filing deadline for most people. "There's no reason for me to pay Uncle Sam — pay, you heard that — until I have to," he said. How about one of the tax writers who could become chairman after Thomas retires at year's end? "Absolutely not," said Rep. Jim McCrery, R-La. "I'm not an accountant. I'm a lawyer." According to IRS statistics, that makes these members of Congress much like the public. More than 60 percent of taxpayers turn to a paid professional to prepare their returns. The number typically increases a little each year. Some lawmakers have more complicated financial lives than the average taxpayer, making their returns more complicated. Some said they had a professional do the job to guarantee the return's accuracy. David Keating, senior counselor at the National Taxpayers Union, said lawmakers should at least try to complete their own returns. Members of tax-writing committees should have to spend 20 hours working on their tax returns before giving up and handing the job to a professional, he suggested. "If they're going to sit on a tax-writing committee, it certainly makes a lot of sense for them at least to attempt to do their own tax return," Keating said. "And when they scream out 'Torture!' to their tax preparer, at least they'd have a better view." A few do dive in on their own. Rep. Paul Ryan, R-Wis., said he does them "just so I can go through the process." Then he asks an accountant to check for mistakes. Sen. Rick Santorum, R-Pa., usually prepares his own taxes using computer software. Sen. Mike Crapo, R-Idaho, does his tax return and his children's. Rep. Kevin Brady's wife, a former banker, prepares the tax returns for the Texas Republican's family. Rep. Jim Ramstad, R-Minn., does not do his own returns, but he agreed it might be a good idea to try. "I think it is important that we operate in the real world," he said. These lawmakers have offered ideas to simplify the tax system, but none has gotten close to enactment. Rep. John Linder, R-Ga., dislikes the tax system so much that he wants to scrap individual tax filing and the Internal Revenue Service. He would trade the income tax system for a consumption tax. A less drastic change is advocated by Sen. Ron Wyden, D-Ore. He did not prepare his real tax returns, but he was able to prepare a hypothetical tax return in 30 minutes based on his proposed simplified tax system. "This last fact is truly revolutionary because no one can remember the last time a member of the tax-writing Senate Finance Committee actually completed their own tax return," he said.