The biggest error: Losing paid-prep regs
An estimated two-thirds of taxpayers claiming the Earned Income Tax Credit (EITC) turn to commercial preparers for help filing their tax returns.
However, basic Internal Revenue Service (IRS) regulation of such preparers – setting minimum training and licensing standards – was halted by a federal district court judge in January. That makes the latest report on improper EITC payments particularly frustrating.
To be sure, such EITC-error studies from the Treasury Inspector General for Tax Administration (TIGTA) historically have had to be put in proper context.
The true extent of EITC errors is likely lower than reported, experts have said. And the IRS has stressed that unintentional mistakes (the results of complex credit qualifications and filing procedures) are probably far more common than deliberate fraud – both of which contribute to the error rate.
Whatever the case, there are plenty of stories about paid preparers inadvertently muffing or deliberately overstating EITC claims. So, wouldn’t it make sense to reinstate rules mandating competency testing and ethics training for such businesses, handling sensitive taxpayer information?
The IRS is appealing the January ruling, compellingly arguing it already has the regulation authority that the district-court judge said it lacks. And just in case, U.S. Rep. Cedric Richmond of Louisiana has filed legislation to make that statutory authority even clearer. Whatever the avenue involved, basic consumer protections call for paid-prep rules – reassuring taxpayers they’re dealing with well-trained, tested-and-certified tax professionals.
Back to that EITC report that TIGTA released last week: It held that at least 21 percent of the EITC payments made to taxpayers in 2012 were faulty. Yet it’s significant to point-out that, while the total dollar amount is up, the error rate has declined over the last decade.
In all, the IRS has made a number of important moves to curb such errors, ranging from improving technology to requiring that paid preparers complete a checklist of due-diligence steps taken for each EITC claim they file.
On a final note, the IRS’ Quality Statistical Sample study found an impressive, 98-percent accuracy rate among EITC calculations handled by free, volunteer-assisted, community tax-prep programs in Fiscal Year 2012. That could reflect, in part, the fact that such programs – such as Volunteer Income Tax Assistance – long have included rigorous training, competency testing, and certification.