The Government Accountability Office revealed Tuesday the results of its undercover investigation into 19 randomly selected paid tax preparers to see whether they were properly calculating taxes in two individual tax scenarios.
Of the 19 sites the GAO visited during the month of February, only two paid tax preparers calculated the correct refund amount. Refund errors made by the other 17 tax preparers ranged from giving taxpayers $52 less than what they should have received to $3,718 more than the correct refund amount, the GAO found.
Other errors were found at many of the sites visited by the GAO. Twelve preparers did not report non-Form W-2 income, like tips, while three of 10 preparers claimed an ineligible child for the Earned Income Tax Credit. The tax preparers also didn't ask the required eligibility questions for the American Opportunity Tax Credit and didn't provide an accurate preparer tax identification number.
The GAO presented each tax preparer with one of two tax scenarios to evaluate. Ten sites were presented with the scenario of a single mother who worked as a waitress receiving cash and noncash tips. The other nine tax preparers were given a scenario of a married couple filing jointly with three children living at home.
The GAO released its limited study as part of testimony for a Senate Finance Committee hearing on incompetent and unethical tax preparers. Nina Olson, a national taxpayer advocate at the IRS, warned that the current system has "devolved into the wild, wild west of tax return preparation."
The Internal Revenue Service is seeking authority to oversee all paid tax preparers. The agency currently only has the ability to regulate certain preparers, like attorneys, enrolled tax preparers and CPA's.
"The better solution would be for Congress to grant us explicitly authority to have better oversight of tax preparers," John Koskinen, the IRS commissioner, told the Senate Finance Committee Tuesday. "Unfortunately, many taxpayers have no easy way to determine whether the preparer they're hiring can do the job."
During the 2011 tax year, an estimated 56 percent of the 145 million individual tax returns filed were completed by a paid tax preparer, according to the GAO.