Postings have been thin lately because tax season is upon us. But I thought I would take a time out to cover some recent news. On April 4th the Senate Finance Committee heard testimony from the GAO on the dark side of tax return preparation. Part of the report was covered by NBC News last Wednesday as part of a series in which they sent undercover interns into national tax prep chains to gauge the honesty and accuracy of the return preparers.  It turns out the GAO report and NBC turned up similar issues.

• Failure to report all income and even advice not to report certain types of clearly taxable income.
  



• Advice to knowingly fill out the return incorrectly and buy the chain’s add-on “service guarantee” to cover any deficiency later assessed by IRS.
  



• Incorrect reporting of more complex deductions such as the child and dependent care credit.
  



• Clerical errors  in filling out the return and failing to correclty sign (and taking responsibility) as a paid preparer.
  



• Missing deductions that could save the taxpayer significant amounts.
  



• Failure to correctly report and maximize education credits and deductions.
  

I’m not trying to bash firms like H&R Block or Jackson Hewitt. We don’t compete for the same clients so I have nothing to gain from their demise. However, I do think there should be a minimum standard for tax preparers before they can serve the public. CPA’s must complete 5 years of secondary education, pass a rigorous exam, comply with continuing education requirements, and practice at the pleasure of their state board of accountancy.

Enrolled Agents have to pass a rigorous two day exam on tax law and compliance, comply with continuing education credits and are regulated by the IRS’s Office of Professional Responsibility (which includes a review of their personal tax filings to make sure they are not cheating themselves). Workers in tax prep chains have no such requirements, nor do the countless return preparers who hang out their shingle each spring only to close up shop in May.

So what’s my beef with the world of unregulated tax preparation? I guess the biggest reason is that chain prep firms have conditioned the public to expect big refunds. Everyone thinks they are owed a big IRS bonus in April and they’re happy to get it when in fact this is the worst type of tax planning possible. The best scenario is to owe as much as possible in April while avoiding underpayment penalties. Why should IRS get to use your money all year interest free? Those who use tax refunds as a financial planning tool are on the whole undisciplined and unsophisticated with regard to their financial matters.

Additionally, the skepticism and criticism leveled at “tax preparers” often does not discriminate. CPA’s and EA’s can point to their credentials and say “come to us, we’re different than those unlicensed preparers at H&R Block.” But there are many excellent preparers who invest in their continuing education and have a wealth of experience that practice fairly and honestly and economically for their clients. For these people a national certification requirement would be a good thing, but my sense is that any standards would be so watered down it wouldn’t matter.

That leaves us with the old adage “You get what you pay for.” And this is definitely the case with tax advice. Professionals who spend thousands of dollars on educational and research resources and who spend thousands more in un-billable personal time investing in their knowledge base will command a higher fee of their clients. If you insist on being cheap you might just see your tax preparer on the nightly news.

Joey Brannon is the founder of Axiom Professional Group, a tax, consulting and accounting firm in Bradenton, Florida. Mr. Brannon is both a CPA and an EA. You can find out more about Axiom by visiting www.axiomcpa.com.