GAO Report: Most Tax Preparation Service Personnel Lack Professional Standards, Leading to Costly Errors
A recent U.S. Government Accountability Office (GAO) report indicates that most paid tax preparation service personnel are not subject to uniform education or professional testing standards, and their error rates are significantly higher than those of self-filers or certified professionals, leading to billions of dollars in improper tax credits annually and exposing taxpayers to audit and penalty risks. The report recommends that Congress authorize the IRS to establish uniform professional standards.
Key Takeaways
- The U.S. Government Accountability Office (GAO) says most paid tax preparers lack education standards or professional testing requirements, opening a multi-billion-dollar gap each year in improper tax credit claims and exposing taxpayers to audits and penalties.
- In a report released Tuesday, the GAO found that uncredentialed paid preparers—who make up 58% of all paid preparers—tend to have higher error rates than taxpayers who file their own returns or preparers with credentials such as certified public accountants or attorneys.
- "When paid preparers make mistakes, taxpayers may overpay and miss out on tax benefits; conversely, if preparers understate tax liability, taxpayers may face penalties and government revenue decreases," the GAO said.
Deeper Dive
Congress has repeatedly tried and failed to pass legislation bringing all tax preparers under clear federal standards. Most recently, such requirements were left out of the One Big Beautiful Bill Act, which was signed into law in July.
Opponents of uniform credentialing requirements argue such regulations would place an excessive burden on small tax preparation firms, potentially forcing them out of business and benefiting large tax preparation companies.
Supporters of uniform standards say unqualified or fraudulent preparers prey on low-income taxpayers, filing false returns that lead to unwarranted penalties.
"Americans trust tax preparers to do their jobs honestly and carefully," said Rep. Greg Steube, a Florida Republican, when introducing a bill in November aimed at ensuring tax preparer competence. "When that trust is betrayed, it can have devastating consequences for the families and small businesses that rely on their services."
The National Taxpayer Advocate (NTA), an independent office within the IRS, has pointed to clear patterns of errors in returns filed by uncredentialed preparers. For example, in fiscal year 2023, approximately 33.5% of payments under the Earned Income Tax Credit (EITC)—amounting to $21.9 billion—were estimated to be improper. The NTA also said returns filed by uncredentialed preparers accounted for 96% of the total dollar amount of audit adjustments.
"While many uncredentialed preparers are competent and ethical, the lack of federal oversight allows unethical or unqualified preparers to make costly mistakes or even commit fraud with relatively minor consequences," the NTA said. "For taxpayers, the consequences of such actions can be severe, ranging from missed tax benefits to audits and penalties resulting from erroneous or fraudulent filings," the NTA added.
The GAO said the IRS has tried to urge paid preparers to improve performance through warning letters, phone calls, and staff visits to reduce errors and misconduct, while also conducting civil and criminal investigations into abusive tax schemes.
As it did in 2014 and 2022, the GAO recommended in its report that Congress authorize the IRS to establish uniform standards for paid tax preparers and set security requirements for their information systems.