The Tax Preparation Industry Is Like the Wild West

Of the 142 million individual income tax returns filed in 2011, 79 million were completed by paid preparers, and a majority of those, 42 million, were filled out by preparers who were neither licensed nor regulated. (The rest were prepared by accountants or other professionals, like lawyers and actuaries, or by a relatively small number of government-certified tax practitioners known as enrolled agents.)

With few barriers to entry, the field of tax preparation has drawn unscrupulous players. Many of them target low-income families who claim the earned-income tax credit, the nation’s single biggest antipoverty program

NYU law student Alex Levy writes about shady, unregulated tax preparers in an editorial today explaining that in most states, anyone can set up a business to prepare your taxes if they wanted to. Currently, only four states require testing and continuing education for tax preparers, according to a Pew report:

• In California, prospective tax preparers must take a 60-hour course, purchase a $5,000 tax preparer bond, apply to the state California State Education Council and pay a $25 fee.

• In Oregon, the requirements are a little stiffer, requiring a high school diploma or GED certificate, 80 hours of tax law education, and passing an examination with at least a 75 percent grade.

• Maryland’s requirements mirror Oregon’s, except the registration fee is $100 for two years.

• New York’s program is similar to the others, with the wrinkle that anyone who is delinquent in child support payments is denied a tax preparer’s license.

In 46 states, there are no such regulations.

But the regulations aren’t doing so much: According to Levy, one investigation in New York State “found fraud among roughly 40 percent of paid preparers,” many of them targeting the poor.

Photo: David Goerhing

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