By Russell Hubbard
January 23, 2009
An Alabama nonprofit organization that advocates the welfare of working-class families said Thursday that some commercial tax preparers are cheating their customers and the government.
Impact Alabama sent 13 volunteers to tax preparation services in the state in recent weeks, and 11 of the returns were fraudulent and all contained errors, executive director Stephen Black said during a press conference at the Smithfield Branch of the Birmingham Public Library. The tax services were provided by both small seasonal firms and large national ones, Black said.
The main problem was the earned income tax credit as it applies to divorced parents who share custody of children, Black said. It awards a $5,000 tax credit to families with children and less than $42,000 in joint household income.
Tax preparation isn’t a licensed occupation in Alabama, and is treated as such in only three states. Impact Alabama said Thursday it has been working with state legislators, some of whom plan to introduce legislation that would regulate, license and test tax preparers. It wouldn’t cover tax attorneys, accountants or others already under the umbrella of another professional organization.
“There need to be at least some minimal standards of proficiency,” Black said.
The earned income tax credit that was the most common source of error in the test returns solicited by Impact Alabamais supposed to go to whichever parent has child custody for the majority of the year. Tax preparers, Black said, routinely give it out to whoever applies first, anxious to boost the refund and charge a higher fee. “This is an unfair and predatory industry,” Black said.
Black said the errors were made at both tax preparers that are open for only a few months a year, and at year-round outlets such as H&R Block and Jackson Hewitt Tax Service.
Jackson Hewitt said in a statement that it is committed to providing accurate tax returns and that it is investigating Impact Alabama’s allegations. H&R Block said it has a “zero tolerance” policy for errors and is also investigating.
Simple tax returns with no itemization took only 40 minutes but often cost $400 or more, Black said. They were often accompanied by offers of advance payment on refunds. Those advances are actually loans bearing an annual interest rate that can top 800 percent, Black said.
Impact Alabama has trained college students statewide to prepare simple tax returns for free, Black said, supervised by experienced professionals. The nonprofit group recruits college students to volunteer for economic, education and health development programs.
A recent initiative secured a $125,000 grant to perform early screening for childhood eye disease. Black is the director of the University of Alabama Initiative for Ethics and Social Responsibility, a college-sponsored center dedicated to social welfare and citizenship issues.
Impact Alabama found these problems in an undercover survey of tax preparation firms in Alabama:
- Abuse of earned income tax credit.
- Tax preparer didn’t sign return, making a prospective audit trail problematic.
- Self-employment income shown incorrectly.
- Interest income shown incorrectly.
- Free electronic filing with IRS refund in about a week never mentioned to filer.
