Tax preparers flunk GAO audit

Tax preparers got the results of an audit from the Government Accountability Office on Tuesday. Let's just say things didn't go well.

The GAO's report cited a small undercover study of 19 paid preparers in February, chosen randomly in states that do not regulate tax preparers. The findings:

• 17 of 19 returns were prepared incorrectly.

• Errors ranged from giving the taxpayer refunds $52 less than due to a refund of $3,718 more than due.

• Most frequent error: not reporting tips (12 of 19 returns).

Unfortunately, the report didn't come as a surprise. The GAO surveyed taxpayer errors from 2006 through 2009 and found that tax returns prepared by preparers had a higher estimated percent of errors — 60% — than self-prepared returns —50%.

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The study was a slight improvement over a similar one conducted in 2006, when 19 of 19 preparers made mistakes in filling out tax forms.

Tax preparers are largely unregulated. In most states, anyone can be a paid tax preparer. Only Oregon, Maryland, California, and New York regulate paid preparers.

"We're clearly on record for encouraging the IRS to educate the taxpaying public between various classes of preparers," says Ed Karl, vice president of taxation at the American Institute of Certified Public Accountants.

William Cobb, CEO of H&R Block, testified before the Senate Committee on Finance that his company supported training standards and stricter anti-fraud measures for tax preparers. He also said that consumers would be willing to do more to support fighting fraud.

And at the heart of the issue is the need for tax simplification, says David Williams, chief tax officer at Intuit, maker of TurboTax software. "I could give you 20 different definitions of modified adjusted gross income," Williams says. "There are a lot of opportunities for tax simplification that stop short of eliminating the tax return."