WebCPA reports in Volunteer Tax Preparers Have High Error Rates that,
Volunteers who prepare tax returns for free through the IRS’s Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs prepared nearly half the returns inaccurately, according to a new report.
The report, by the Treasury Inspector General for Tax Administration , found that 41 percent of the tax returns were prepared inaccurately by volunteers when TIGTA auditors anonymously visited volunteer sites around the country to gauge the preparers’ proficiency.
The IRS’s VITA and TCE programs provide free federal tax preparation and electronic filing services to low- and moderate-income taxpayers, the elderly, the disabled, and those who have limited English proficiency, but those services are questionable when the returns aren’t prepared correctly.
Of course, this doesn’t mean that all unenrolled VITA preparers are incompetent. In fact, it means that a majority of them are doing a good job.
But a 41% error rate is too high and likely means one or a combination of these two things:
- Many VITA volunteers are impropertly trained or lack the basic skills necessary to be good tax return preparers; or
- The tax code is simply too complicated and confusing.
I have not seen the error percentages for CPA and Enrolled preparers. I think it would be interesting to compare their screw-up rates to those of the VITA preparers.
My hunch is that the rates for CPAs and Enrolled agents are also unacceptably high.
Related Posts:
ABA Statement on Preparer Regulation
Beware the Unlicensed Tax Preparer
Unlicensed Tax Preparers Not So Good, TIGTA Study Reveals
8 responses so far ↓
1 Mary // Oct 22, 2009 at 12:11 am
I was also very troubled to read the TIGTA VITA report. It should be noted that most of the errors found involved fairly small dollar amounts.
The most common error TIGTA secret shoppers discovered was preparer failure to deduct the new “non-standard standard deduction” for up to $500 of real estate taxes paid by a non-itemizing taxpayer ($1,000 on a joint return). Because the secret shopper taxpayer was in the 10% bracket, this error meant that his tax liability was computed to be $50 higher than it should have been. If he’d been a real taxpayer, he would have lost out on $50 to which he was entitled.
That might not seem like a lot of money to many people, but it is certainly a meaningful sum to VITA taxpayers, and I took care to create a Quality Review process at my site that ensured our taxpayers got the benefit of that particular provision of the law as well as the many other provisions that apply to low-income working families and senior citizens.
According to the TIGTA report, the problems they found happened almost entirely at VITA or AARP sites that did not comply with the strict IRS requirements to follow a Quality Review process mandated by the IRS.
I feel very strongly about the importance of Quality Review. Anyone can make a mistake, which is why every return at our VITA site is reviewed under a multistep process even more rigorous than IRS requires.
It’s very disturbing to me that so many other VITA sites were not even complying with the minimum quality review process requirements. The study demonstrates that the IRS has good reason to insist that volunteer sites adhere to their quality review guidelines.
Eligibility for the non-standard standard deduction for real estate taxes is so rare among actual VITA clients (even though the TIGTA used it in 25% of their secret shopper scenarios, only 1% of actual VITA taxpayers are eligible for it) that it would be a very easy oversight for a volunteer preparer to make. That’s exactly the kind of oversight that a quality reviewer using the punch list we have at our VITA site is designed to catch.
Studies have shown that punch lists make a difference–whether it’s making sure that doctors don’t leave sponges in bodies during surgery or preparers don’t make mistakes in doing tax returns!
You also raised the question about error rates by paid preparers.
Here’s a link to an interesting study done by a law professor and an IRS employee showing many large errors in EITC returns by a variety of types of paid preparers. Error rates were unacceptably large across the board, but surprisingly the returns prepared by chain preparers had lower error rates than the returns prepared by CPAs and lawyers!
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1454795
Of course, there are always concerns about the sampling methodology in all type of studies like these. It’s hard to know whether the sample that was analyzed may have been unrepresentative due to left-out variable bias or some other methodological error.
2 Peter // Oct 22, 2009 at 9:18 am
Mary,
I think all of these studies are misleading.
I remember a time when they gave nationally recognized tax professionals a hypothetical set of facts and had them prepare a tax return.
Everyone came up with a different answer.
The tax code is too complex even for people who do this stuff for a living.
3 Michael // Oct 22, 2009 at 12:23 pm
I am one of the instructors and quality reviewers at the AARP/VITA site where I volunteer. I would like to know the kinds of errors that slip through because I would concentrate on those areas in next year’s training. As noted in the story, the secret shoppers set up the volunteers to make mistakes on what to them will be exotic items. Is there any study that shows what the error rate is on returns done for normal clients?
4 Peter // Oct 22, 2009 at 3:02 pm
Michael,
Thank you for visiting. Here is an excellent article titled Avoid 25 Common Tax Return Errors published by Ernst & Young.
Good luck.
5 Mary // Oct 22, 2009 at 6:06 pm
Peter, I agree with you that the tax code is way too complex.
It was Money Magazine that used to run an annual survey of a variety of tax pros. Here’s a link to an article on one of their annual surveys:
http://money.cnn.com/magazines/moneymag/moneymag_archive/1992/03/01/87178/index.htm
If there had been blogs in those days, the headline of a blog post describing that Money Magazine survey could have read “Tax Pros are wrong 100% of the time.”
But that would have been a misleading headline, because the Money Magazine tax scenario was a very unusual and complicated tax situation, deliberately constructed to create the possibility for errors. I’m sure it was not true back then that tax pros were wrong 100% of the time–it was just that 100% of them were wrong on the particular scenario Money Magazine chose.
Similarly, I’m sure that the preparers who made mistakes on the rather unrepresentative scenario (for a VITA site) of the non-itemizing real estate taxpayer are not wrong 100% of the time. In fact, the taxpayers who got that particular aspect of their TIGTA Secret Shopper’s return wrong handled every other aspect of the TIGTA Shopper’s return in a completely accurate way.
That doesn’t excuse the mistake they made, but it does mean that the 41% statistic cited in your headline probably overstates the error rates they make on actual returns that they do for real live taxpayers.
6 Peter // Oct 22, 2009 at 6:33 pm
Mary,
Agreed. The more complex the tax return the less likely it is that any two tax preparers will come to the same result. There is probably a range of correct answers rather than just one correct answer.
7 Lawyer Section // Oct 24, 2009 at 1:34 am
I am going with the tax code being to complicated. How many people actually file their taxes correctly. That would be an interesting stat
8 Latest tax preparation news – VITA Tax Return Preparation Volunteers are Wrong 41% of the Time // Jan 19, 2010 at 10:25 am
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