Here is an exerpt of an article titled TIGTA: Unenrolled Preparers Often Wrong that appeared in the December 2008 edition of the Journal of Accountancy:
Unenrolled, unlicensed preparers had only a 35% accuracy rate in preparing income tax returns, in a test conducted by the Treasury Inspector General for Tax Administration.
More than one-third of the erroneous returns contained misstatements or omissions that TIGTA considered willful or reckless.
TIGTA auditors posed as taxpayers earlier this year at 12 offices of commercial tax preparation chains and 16 small, independently owned offices.
Of the 28 tax returns prepared, only 11 were prepared correctly, TIGTA said. If the 17 erroneous returns had been filed with the IRS, they would have resulted in $12,828 in underpaid taxes.
TIGTA determined that six returns [more than 205] contained willful or reckless omissions or misstatements.
Fees charged by the preparers varied widely—even among similar returns—but averaged $234 per return at commercial chains and $132 at independent offices.
In spite of studies like this one from TIGTA (and this one) some folks continue to maintain that the unenrolled preparer is a better choice than the CPA for your tax preparation needs.
Sigh!
But unenrolled preparers don’t charge as much
One of the sales pitches unenrolled preparers regularly make is that taxpayers should hire them to prepare their tax returns because they charge less than CPAs, tax attorneys and IRS Enrolled Agents.
Given the study above, and many, many others like it, they can’t credibly make the argument that they are better qualified (although, anyone who has been following blog for the last few weeks knows that some make the attempt).
It’s a rather feeble consolation to a taxpayer whose return has been audited, negative adjustments made and penalties and interest assessed, that his unenrolled tax preparer charged him less than a licensed tax preparer would have charged.
And despite what you hear, we have found that CPAs and Enrolled Agents charge only nominally higher fees than do unenrolled preparers (for example, we are CPAs, attorneys and IRS Enrolled Agents and our average basic Form 1040 tax preparation fee is $220).
Discount parachutes, or you get what you pay for
Perhaps those extra fees licensed preparers charge are for . . . ahem . . . getting it right.
It’s a cliche but nevertheless true that you get what you pay for.
And for some products and services you simply do not want to go cheap.
You wouldn’t want to buy a discount parachute, for example?
Incidentally, licensed preparers are also much more likely to carry malpractice insurance (you know, just in case they screw up like the unlicensed ones) than are unenrolled preparers.
It would seem, then, based on this study and the myriad others like it, that the preparers who really need malpractice coverage don’t have it.
22 responses so far ↓
1 Bruce // Jul 6, 2009 at 12:31 pm
This is all very fascinating, all these groups and agencies testing un-enrolled preparers.
Where is the TIGTA Study for CPAs?
Where is the TIGTA Study for EAs?
I mean really, if we (it is our tax dollars at work) are going to spend the money to test a group of preparers, test all the groups. Not just UEPs.
As a taxpayer, I see the study as one side and frankly pointed. An effort to discredit all UEPs.
They went to 28 sites where unenrolled prepares are. So go to 28 site also where CPAs sign the return as preparer.
Lets go to 28 sites where tax lawyers sign the return as preparers.
Lets go to 28 sites where EA’s sign the return as preparers.
And just to add a little more truth to it, lets find out of the 28 CPAs, the Lawyers, the 28 EAs who signed as preparers are the ones who actually sat down and prepared the returns.
My guess as to what would be found. CPA’s, Lawyers, EAs will have a lower error rate. However they wouldn’t be error free.
Strangely enough, I think there would be a higher number of returns with willful or reckless omissions or misstatements. Maybe.
Of the CPAs, Lawyers, and EAs who sign returns, with the exception of maybe the EA (Would depend on the office) you will find a very low number of those returns were actually “prepared” by them. They higher temps or have members of their staff prepare. These temps, and or staff members are unenrolled prepares.
It is my assumption that the fees from a CPA preparer are higher than an unenrolled preparer are due to the extra staff.
When I worked for a Firm full of CPAs, come tax season, temps were employed (these people would fall under unenrolled preparers) to take the information gathered by the CPA from the taxpayer/client and put it to a return. The return was then sent to an intern for review. It was then sent to an examiner, and then returned to the CPA. Some of them looked the finished return over, most did not. Not from what I saw.
I understand not all offices work this way, some just outsource the job. Locally I have four “Offices” who gather info from their clients and outsource the work to me.
Please stop telling me/us how horrible and freighting unenrolled preparers are. To me you are comparing apples and oranges and the studies that back you up, are just as equally biased.
Can you office boast 100% accuracy? If so, then why is it you are always looking to improve your business.
I know, unfair play on words and taken way out of context.
So, let me see if I hire someone to actually preparer the return, some else to review, and someone else to exam the return, I can honestly say that a basic average return from my office would be around $250. Not for insurance to cover my ass, but to pay the additional wages.
Malpractice insurance – also called Professional Indemnity Insurance? You have got to be kidding me. A need for this insures to a taxpayer/client what, that if you screw-up, that you have insurance to cover yourself.
And as a side not I do carry Insurance, but my fees are not higher because of it. This insurance is for my protection and I pay for it, it isn’t figured into my price for preparation.
I am not bashing CPAs Lawyers, EAs, but like you said lets call a kettle a kettle. A rose by any other name is still a rose. A crap preparer by any name is still a crap preparer.
Statistically unenrolled prepares look bad, it is my contention that the deck is stacked.
2 Peter // Jul 6, 2009 at 12:52 pm
Bruce, they are testing everyone. It’s just that unenrolled preparers are coming up short.
You can’t fight this, Bruce.
Unless of course you’re going to go all “conspiracy theorist” on me and suggest that all CPAs, lawyers and Enrolled Agents are making this stuff up just to eliminate the evil unenrolled preparer.
That’s about as reasonable as saying the Iceberg didn’t act alone in the sinking of the Titanic!
3 Bruce // Jul 6, 2009 at 1:33 pm
Not fighting anything.
Please point me, and the rest of us, to the TIGTA study over CPAs. Where is it?
I for one would love to read it, and quote it.
4 Mary // Jul 6, 2009 at 1:48 pm
That’s an interesting point about malpractice insurance.
It would be interesting to see if it’s even possible for an unenrolled preparer to purchase malpractice insurance.
If unenrolled preparers can purchase such insurance, it would be interesting to compare the rates they are charged compared to the rates charged to preparers who hold some form of professional license.
5 Bruce // Jul 6, 2009 at 1:53 pm
Mary,
The cost I am told is less than that of one with professional licese.
My agent tells me this so I can only take is word for it.
6 Bruce // Jul 6, 2009 at 2:19 pm
Here is a point made in the above mentioned study that you didn’t mention to the rest of your readers:
“Given the study’s small sample size, the findings cannot be generalized to all paid preparers.”
Correct me please if I am wrong, isn’t that what you are doing, generalizing the finds to all paid preparers?
7 Bruce // Jul 6, 2009 at 2:24 pm
“The fees ranged from $74 to $271. Paying more did not guarantee a more accurate return: Three preparers who charged $74, $150 and $271, respectively, provided correct returns, while the others contained errors.
One practitioner who charged $200 prepared a return that was “willfully or recklessly” prepared, according to the report.”
Hummm
If I read this correctly, this kinda blows a therory of yours.
The person who paid $74 had an accurate return, The person who paid $200, well, did he get what he paid for?
8 Peter // Jul 6, 2009 at 3:36 pm
Bruce,
You said,
Goodness, gracious. I didn’t suggest and the Hite and TIGTA studies don’t assert that all returns that cost more are more accurate than all returns that cost less.
This is about statistical probablities, not absolutes.
I am sure I can find an instance where someone got his tax return prepared free of charge and it contained no errors.
Likewise, I can find a case where someone got his tax return prepared for $1,000 and it was riddled with errors.
The single incident standing alone means nothing when it comes to statistical probabilities.
That’s why the TIGTA study examined 28 returns and not just 1 return.
Also, you say this “kinda a blows a theory of yours.”
Well, given the myriad studies that have shown that unenrolled preparers make substantially more errors than CPA preparers, I don’t think it’s theory at all.
It’s a living, breathing reality.
One, I am afraid, some folks just cannot accept.
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17 AspiringCPA // Jan 26, 2010 at 4:34 pm
The idea that unenrolled tax preparers are the ones actually touching your return at a CPA firm is also deceptive Bruce: 2 CPAs then review the return where I work. Also, don’t forget the important fact that the unenrolled preparer is not legally able to practice before the IRS (represent you in tax court or discuss your return with the IRS). If the CPA does something wrong…he can fix it for you. With the unenrolled preparer, you will have to seek proper representation, concede to the IRS, or represent yourself (any of these seem to defeat the purpose of hiring someone in the first place).
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21 ami // Mar 6, 2011 at 12:50 am
Let’s just call a spade a spade….EA, CPA, JD….all of these are just indications that someone has passed an exam of some sort. Ultimately they are really no measure of anyone’s knowledge. Tax preparation unfortunately is largely “learn as you go” and it is no surprise that “35%” of unenrolled preparers file inaccurate returns. With the IRS continually “simplifying” the tax code, things are bound to happen. I am working for a great firm this season but with ALL the complications ranging from enormous returns, unbearably unwieldy software, office procedures and IRS expectations…it’s no small wonder that there is this kind of error rate. I also do clients at home and am in the process of studying for the EA exam (no small feat) and the reason people like “unenrolled preparers who charge less” is because for them it is not worthwhile to spend $200 to file a 1040EZ or 1040A. Can’t blame ‘em. Our expenses are not THEIR problem. How are you going to pretend you put all that much time and effort into a return when you know you only entered three numbers! And define “not so good” when discussing unenrolled preparers….CPAs, EAs, JDs….hmmm…..no mistakes eh? Look….today I incorrectly double-entered a couple of charitable donations. I know why I did it. The client submitted materials in a hodgepodge fashion! Another great way to increase preparer error rate. If the “35%” number can be believed, then I think it’s an IRS expectation problem…..not a negligence/fraud issue or a my-initials-are-better-than-your-initials issue.
22 Peter // Mar 6, 2011 at 10:13 am
Ami,
Designations do not guarantee you will get compentence, integrity or honesty, but rather that the chances of getting those things is greater than if you had hired someone without the designation. And, if you don’t get competence, integrity and honesty, you can do something about it by filing a complaint with the regulatory authorities or making a claim against the preparer’s malpractice carrier.
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