In many cases, using a paid tax preparer will get you a larger refund than if you did your own taxes, but a Government Accountability Office survey suggests you might not be entitled to that money in the first place.
With an estimated 56% of the 145 million U.S. tax returns filed in 2011 through a paid preparer, Internal Revenue Service data shows that the median refund among filers across all income levels was 36% higher than it was for those taxpayers who filed on their own.
But that’s where the good news gets tenuous. In an undercover survey, the GAO selected 19 commercial tax preparers at random and gave them a fictional tax return to prepare, either for a “waitress” who was a single mother, or a “mechanic” who was married filing jointly.
The survey found that 17 out of 19 paid preparers got the refund wrong, and in 11 cases, the refund was $654 to $3,718 more than the tax payer would have deserved.
“Many of the problems we identified would put preparers, taxpayers, or both at risk of IRS enforcement actions,” the GAO report said.
The report also noted that an analysis of the IRS’s National Research Program database from 2006 to 2009 showed that returns done by paid tax preparers were more likely to have the tax due or refund amount wrong than self-prepared returns. Paid preparers had an estimated 60% error rate, while self-preparers had a 50% error rate.
In the survey, the GAO said the most frequent errors included not reporting income like cash tips that aren’t included on the W-2 form, claiming an ineligible child for the Earned Income Tax Credit, not asking required eligibility questions for the American Opportunity Tax Credit, and not providing an accurate preparer tax ID number.
The GAO’s report comes at a time when the IRS is trying to increase oversight of those paid preparers who are not licensed or regulated, yet prepared about one-third of tax forms filed last year.