By Nick Cenegy, Staff Writer
01/23/2009
An undercover study of 13 un-enrolled seasonal tax preparers in the state, including one in Anniston, showed what one group calls “significant fraud and negligence.”
The investigation, conducted Jan. 8 to 15 by ImpactAlabama, a Birmingham-based nonprofit, found that none of the 13 businesses correctly prepared filings.
There are a variety of trained professional tax preparers in the state including tax lawyers, certified public accountants and enrolled agents who have passed an IRS test. Most require a good bit of education to achieve or are regulated by the state. There are also an increasing number of un-enrolled commercial preparers, said Impact Alabama President Stephen Black.
There are no minimum proficiency standards or certification requirements to become a tax preparer in the state.
Un-enrolled preparers range from those who work for national companies that require employees to take training classes to local car dealerships that offer free tax preparation in exchange for using the refund as a down payment on a car.
“I was shocked, even by the national chains we went into,” said Black. “There is a huge profit incentive for this industry to prepare returns incorrectly,” he said.
The cost of the tax preparation services ranged from $80 to $402. Black said it is a problem that there is no clear-cut amount for a given return. “They are very vague about fees. At the end many pull out a number and clearly charge more the bigger the refund is,” he said.
ImpactAlabamaduplicated studies conducted by government agencies and the National Law Center in recent years.
Staff members brought their W-2 tax forms and posed as taxpayers in one of two different scenarios seeking tax preparation at the businesses. Prior to the study, they consulted with Birmingham-based CPA Steve Hendricks, a partner at Culotta, Scroggins, Hendricks & Gillespie, P.C. to find out what an appropriate filing would be.
Black said the group found significant problems with the relatively simple filings. While the preparers often allowed taxpayers to take home significant refunds, the incorrect filings would have made taxpayers vulnerable to fines and penalties during later audits, he said.
Black said neither of the study’s scenarios should have made the taxpayer qualify for a refund, but all 13 preparers yielded a refund, with amounts ranging from $65 to $6,247.
The Anniston location of Columbus Finance Company and Income Tax Service onSouth Quintard Avenueincorrectly figured a $6,247 refund when in reality the taxpayer owed the government $112, according to the study.
Preparers there also failed to report self-employed and interest income. Additionally a $2,110 earned income tax credit was incorrectly applied.
Efforts to reach the owners of Columbus Finance Company for comment Thursday were unsuccessful.
In each scenario the student members described themselves as parents with one or two children who lived with them less than six months of the year. For parents to claim the Earned Income Tax Credit, the child must stay with them for more than half the year. Eleven of the 13 tax preparers claimed the credit on the tax returns.
“This damages people. They are not just cheating the IRS but parents and children too,” Black said. It can cause the other parent, who is rightfully entitled to the credit, to have a tax return held up for months until he or she can verify the children’s residence, he said. Then the parent who wrongly filed can be penalized, Black said.
Ten of the 13 preparers did not report outside income, eight didn’t report interest income, and 12 allowed the taxpayer to claim “head of household” status without being qualified for it.
Black said his organization is working with legislators on a bill that would provide oversight for the industry.
At Jackson Hewitt’s national headquarters, spokeswoman Kristen Sharkey said the company is reviewing the documents released by Impact Alabama, but the company “is committed to providing accurate, quality tax preparation and the highest level of customer service.”
Nancy Mays, communications director for H&R Block, said the company has a “zero tolerance policy” for intentional misstatements or errors by tax preparers.
“We have already begun to investigate the situation and will take swift and decisive action,” she said.
The Associated Press contributed to this report.
