Tax mistakes hurt, especially when you pay someone to make them

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BETTER OFF ON YOUR OWN: Taxes are confusing and complicated, and for good reason. But even the people paid to understand them can — and often do — make mistakes, the GAO found.

By Eric Boehm | Watchdog.org

Taxes are confusing and complicated.

That’s why millions of Americans hire someone to help them fill out the proper forms and, in theory, get the biggest refund possible from the federal government.

But even the people paid to understand them can — and often do — make mistakes, according to the Government Accountability Office.

A GAO survey of 19 randomly selected tax preparers found that 17 of them made mistakes. Even though the office warns that those results should not be generalized, the GAO found similar results in 2006 — when 19 out of 19 samples had errors — and in 2008 during similar reviews.

Common errors, said James McTigue, the GAO’s director of tax services, include not reporting cash tips, claiming ineligible children for tax credits, and not asking eligibility questions for the new American Opportunity Tax Credit.

THE TAXMAN COMETH: Tuesday is Tax Day in the USA.

“Such errors could lead taxpayers to underpay their taxes and may expose them to IRS enforcement actions,” McTigue said.

More than half of all taxpayers rely on paid tax preparers, the GAO reported.

In 2010, the IRS tried to make all paid tax preparers get licensed, which required paying a fee to the government and passing a test. But federal courts shut down that program in a ruling issued in February, as judges found the agency did not have the legal authority to impose such requirements.

The GAO recommends that Congress give the IRS more authority to have oversight of all paid tax-preparers. Right now, the IRS only has oversight of certified public accountants and attorneys.

But the millions of taxpayers who are rushing to finish their tax returns before Tuesday’s midnight deadline probably would have a different suggestion: Simplify the tax code so no one needs help in the first place.

That’s probably a good idea for another reason.

As ProPublica reported last year, paid tax preparers have an incentive to keep the American tax code as complicated as possible, thus ensuring lots of future business from beleaguered taxpayers.

Intuit Software, which owns TurboTax, spent $11.5 million during the past five years lobbying against simplifications to the American tax code that could save an estimated 225 million hours in collective prep time.

Boehm can be reached at EBoehm@Watchdog.org and follow @EricBoehm87 and @WatchdogOrg on Twitter for more.