Paid Tax Preparers: Most Taxpayers Believe They Benefit, but Some Are Poorly Served

Published by the Government Accountability Office on 2003-04-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States General Accounting Office

GAO                          Testimony

                             Before the Senate Finance Committee

For Release on Delivery
Expected at 10:00 a.m. EST
Tuesday, April 1, 2003       PAID TAX PREPARERS
                             Most Taxpayers Believe
                             They Benefit, but Some Are
                             Poorly Served
                             Statement of James R. White
                             Director, Tax Issues

                                                  April 1, 2003

                                                  PAID TAX PREPARERS

                                                  Most Taxpayers Believe They Benefit, but
Highlights of GAO-03-610T, a testimony
before the Senate Finance Committee.              Some Are Poorly Served

In tax year 2000, over half of                    Based on our on-going work, most taxpayers believe they benefit by using a
individual filers paid someone to                 paid tax preparer. According to the results of our nationwide survey, 77
prepare their tax return. These                   percent of taxpayers said they were very or generally confident that their
taxpayers paid an estimated $14.7                 preparer completed a tax return that allowed them to pay no more in taxes
billion for individual return                     than was legally required. In addition, the survey showed that 87 percent of
preparation. Despite the
importance of paid preparers' role
                                                  taxpayers would use a paid preparer in the future. Despite these facts,
in the tax system, little data exist              taxpayers may not understand the tax laws well enough to accurately assess
on the quality of the services they               their preparers’ performance. To provide quality service, paid preparers
provide. In light of this, GAO                    must probe the personal circumstances that could affect the amount of tax
surveyed and interviewed                          their clients owe, such as whether the taxpayers have dependents. For
taxpayers and gathered examples                   example, one taxpayer took 3 years of prior returns prepared by a friend to a
of the range of outcomes                          tax preparer. The preparer found that the taxpayer had overpaid his taxes by
experienced by taxpayers who                      more than $6,200 because he had overlooked earned income and child tax
used paid tax preparers.                          credits.

                                                  While most taxpayers expressed confidence in their paid preparers, our
GAO is not recommending                           survey, studies of filed returns, and interviews with knowledgeable
executive action. However, GAO                    observers suggest that a small percent of taxpayers are poorly served due to
identified guidance from various                  problem performance by preparers. For example, GAO’s survey results
sources suggesting common sense                   indicated that 5 percent of all taxpayers had no confidence that they had not
steps taxpayers can take when                     overpaid their taxes. However, even a small percentage of the more than 71
choosing or working with a paid                   million users of paid preparers in 2000 can translate into millions of affected
tax preparer, such as:                            taxpayers. Preparers who fail to adequately probe, provide questionable
                                                  advice, or engage in fraudulent practices can cause serious adverse
     When searching for a preparer,
                                                  consequences for their clients. For example, one taxpayer overpaid his taxes
     obtain recommendations from
     people you trust.                            for several years by about $3,500 to $5,000, despite receiving notices from
     Check out your preparer's                    the Internal Revenue Service that he may be eligible for the earned income
     qualifications.                              tax credit. When he showed these notices to his paid preparer, the preparer
     Make sure you understand the                 took no action.
     services you will be getting,
     how much they cost, and how                  Paid preparers are not always the cause of problems—taxpayers can provide
     they will benefit you.                       preparers inaccurate or incomplete information. Despite using a preparer,
     Make sure your preparer                      taxpayers are still ultimately responsible for the accuracy of their return.
     understands your personal
     circumstances and reviews                    Paid Preparer Users’ Confidence That They Did Not Overpay Their Taxes
     your official tax documents.
     Review your completed return
     before you sign it.


To view the full testimony, including the scope
and methodology, click on the link above.
For more information, contact Jim White at
(202) 512-5594 or WhiteJ@gao.gov.
Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss our on-going study of paid tax
preparers. The Internal Revenue Service (IRS) estimates that there were
up to 1.2 million paid tax preparers in 1999. These paid preparers are
important to taxpayers, as underscored by the fact that in tax year 2000,
over half of the 130 million individual filers paid someone to prepare their
tax return. Taxpayers paid an estimated $14.7 billion for individual return
preparation. Numbers like these suggest that taxpayers believe that paid
preparers provide a valuable service.

Given the complexity of the tax code, it is easy to understand why so many
taxpayers depend on the assistance of a paid preparer. The need for the
assistance of a paid preparer, combined with the fact that our tax system
relies on taxpayers accurately completing and filing their returns, means
that paid preparers play a critical role in the functioning of the nation’s tax

Despite the importance of paid preparers, minimal data exist on the quality
of services they provide. However, there are indications that some
preparers make errors on taxpayers’ returns that can result in taxpayers
overpaying or underpaying their taxes. For example, last year we
estimated that over 2 million taxpayers overpaid their 1998 taxes by $945
million because they claimed the standard deduction when it would have
been more beneficial to itemize .1 Half of these taxpayers used a paid
preparer. While taxpayers undoubtedly contributed to some of these
errors, these data raise questions about the extent of errors caused by paid

In light of the importance of paid preparers to the functioning of our tax
system and the lack of information about the quality of service they
provide, you asked us to (1) obtain the views of taxpayers who used paid
preparers and provide examples of paid preparer performance, including
the type and what is known about the extent of problems caused by paid
preparers and (2) identify common sense steps taxpayers can take to help
ensure that they benefit from using a paid preparer.

 Tax Deductions: Further Estimates of Taxpayers Who May Have Overpaid Federal
Taxes by Not Itemizing (GAO-02-509, March 29, 2002).

Page 1                                                               GAO-03-610T
My statement today is based primarily on a nationwide representative
survey of taxpayers; in-depth interviews with a judgmental sample of
taxpayers regarding their experiences with paid preparers; phone calls to a
limited number of preparers in which we posed as potential clients asking
about services and fees; interviews with large and small tax preparation
firms, IRS’s National Taxpayer Advocate, IRS officials, and several tax
clinics offering tax help to low income taxpayers; and a review of IRS’s
closed case files on preparers investigated for fraud or other misconduct.

Anyone can be a paid tax preparer. No laws or regulations limit who can
sell tax preparation services. The types and training of paid preparers vary
widely. They range from attorneys and certified public accountants (CPA)
to preparers who are not licensed and have no formal training.
Commercial preparers may hire any of these and may also provide their
own training. However, IRS does place limits on paid preparers who can
represent taxpayers in matters before IRS. Those representing taxpayers
are collectively referred to as practioners and can be attorneys, CPAs, and
enrolled agents—that is, former IRS employees or individuals tested in tax
laws. All others are referred to as “unenrolled agents.” Practioners are
governed by IRS Circular 230 regulations that prescribe standards of
conduct and sanctions for violating the standards.

In summary, our work to date shows a range of paid preparer

•   Most taxpayers who used a paid preparer believe they benefit by doing
    so. In addition, most taxpayers reported that they did not pay more in
    taxes than was legally due and that their preparer knew enough about
    their personal tax situations to accurately prepare their returns. Paid
    preparers told us that asking probing questions about their clients’
    personal circumstances or seeing documentation of income and
    potential deductions were important components of providing quality

•   However, some taxpayers using a paid preparer end up overpaying
    their taxes or preparer or underpaying their tax liability because some
    preparers did not adequately probe into or pay attention to taxpayers’
    personal circumstances, made computational errors, provided
    questionable advice, or, in rare cases, engaged in fraudulent activities.

Our work also shows that despite the use of paid preparers, taxpayers are
ultimately responsible for the accuracy of their tax returns. Taxpayers can
take some common sense steps to ensure they benefit from using a paid

Page 2                                                            GAO-03-610T
                     preparer, including providing complete and accurate information to their
                     paid preparers.

                     Taxpayers choose to use paid preparers for a variety of reasons. Many of
Most Taxpayers Are   the taxpayers we spoke to told us they used a paid preparer because they
Confident They       did not understand the tax laws. One taxpayer, for example, said she
                     began using a paid preparer 9 years ago to help her with estate tax issues
Benefit from Using   following the death of her father. Other taxpayers said they lacked the
Paid Preparers       time or patience to complete their return on their own. For example, a
                     mother of four who operates her own business part-time and is finishing
                     her degree at night said she simply does not have the time to do her own
                     taxes. Other taxpayers stated that they paid someone to prepare their
                     taxes in hopes of obtaining a larger and/or quicker refund.

                     Most taxpayers who used a paid preparer believe they benefit from doing
                     so. We estimate, based on our representative sample of taxpayers, that 77
                     percent of taxpayers who used a paid preparer are very or generally
                     confident that they did not pay more in taxes than was legally required, as
                     shown in figure 1. In addition, based on our survey results, we estimate
                     that 87 percent of taxpayers would use a paid preparer in the future.

                     Figure 1: Paid Preparer Users’ Confidence That They Did Not Overpay Their Taxes

                                                                                            Not at all confident

                                               •                                            7%
                                       •                                                    A little confident

                                                                12%                         No opinion


                                                            28%                             Generally confident

                                                                                            Very confident
                     Source: GAO Nationwide Survey of Taxpayers.

                     Note: The estimates have a 95 percent confidence interval of plus or minus 5.23 percent or less.

                     Page 3                                                                                             GAO-03-610T
A word of caution about our survey: it reflects taxpayers’ perceptions and
may overstate the quality of service paid preparers are providing. Most of
the taxpayers we talked to in-depth said they used a paid preparer because
they found IRS tax forms and documents too complicated or they were
confronting an unusually complicated tax situation. Thus, the taxpayers in
our survey may not understand the tax laws well enough to evaluate the
performance of their paid preparers. Evidence that some taxpayers who
used preparers overpaid or underpaid their taxes also suggests that
taxpayers confronted by complicated IRS forms and a confusing tax code
may be unable to identify errors made by preparers. For these reasons, the
percentage of taxpayers who were confident they did not overpay their
taxes may be overstated. There are no reliable data on the extent of the

Despite this caveat, paid preparers can benefit their clients in several
ways. First, probing about taxpayers’ personal circumstances can help
paid preparers ensure their clients do not overpay or underpay their taxes.
Paid preparers told us they use a variety of techniques, including personal
interviews and questionnaires, to get information about their clients’
dependents, mortgages, other deductible expenses, or asset sales. Some
paid preparers maintained contact with their clients during the year,
allowing them to become intimately aware of the financial issues facing
their clients and to make meaningful suggestions to reduce future
liabilities. Based on our survey results, taxpayers were very confident that
their preparer did sufficient probing or took other steps to ensure an
accurate return. We estimate that about 91 percent of taxpayers believe
their preparers had enough information about their personal
circumstances to accurately prepare their tax returns, as shown in
figure 2.

Paid preparers also can benefit their clients by reviewing income and
expense documentation. To do this, most of the preparers we talked to
said they ask their clients to provide documentation to support claimed
income, deductions, and credits, such as W-2 forms from employers or
1099 forms from financial institutions. Taxpayers in our survey confirmed
that this is a common practice. We estimate that 88 percent of paid
preparer users were asked for supporting documentation, as shown in
figure 2.

Page 4                                                          GAO-03-610T
Figure 2: Client Perceptions on Aspects of Paid Preparer Performance

Note: The estimates have a 95 percent confidence interval of plus or minus 5.23 percent or less.

Another way paid preparers can benefit their clients is educating them
about the tax laws. Such efforts can help ensure taxpayers neither overpay
nor underpay their taxes and may promote overall compliance. For
example, one preparer who works primarily with immigrants said he and
his staff spend considerable time explaining to their clients that paying
taxes is part of the civic responsibilities they assumed in immigrating to
this country. Other preparers told us they often have to educate taxpayers
on more complex concepts, such as computing the basis, or the
investment made in a property for tax purposes, to determine how much
of a real estate sale would be taxable. Another preparer told us he found
that a taxpayer had overpaid his taxes by more than $6,200 over a 3-year
period because the taxpayer had overlooked earned income and child tax
credits. Still, another preparer told us he helped a taxpayer receive a

Page 5                                                                                             GAO-03-610T
                           refund in excess of $19,000 when he found out that the taxpayer, who had
                           moved twice in less than 2 years, had missed out on deductions for moving
                           expenses due to job relocations.

                           Paid preparers are also required by law to take certain steps when filling
                           out returns for their clients, including signing the return and giving their
                           clients copies of the completed returns. We estimate that a vast majority of
                           paid preparers signed and provided their clients a copy of their return, as
                           shown in figure 2.

                           A variety of evidence shows that some taxpayers are poorly served by
Evidence Suggests          their paid preparers. The available evidence does not allow a precise
That a Small               estimate of the percentage of taxpayers affected, but none of it suggests
                           that the percentage is large. However, even a small percentage of the over
Percentage of              71 million users of paid preparers in 2000 can translate into millions of
Taxpayers Are Poorly       affected taxpayers. Furthermore, the consequences for these taxpayers
                           may be significant. They may overpay their taxes, overpay their preparers,
Served Because of          or underpay their taxes and be subject to penalties and interest.
Problematic Preparer

A Variety of Evidence      Surveys of taxpayers, studies of filed returns, and interviews with
Suggests That a Small      knowledgeable observers all show that some taxpayers are poorly served
Percent of Taxpayers Are   by their paid preparer. We estimate that 5 percent of paid preparer users
                           had no confidence that they had not overpaid their taxes, and another 7
Poorly Served by Their     percent had little confidence, as shown in figure 1. These results echo a
Preparer                   1997 Consumer Reports nonrandom survey of 26,000 of its readers, in
                           which 6 percent said they discovered an error made by their preparers.
                           Because these surveys are based on taxpayers’ perceptions and ability to
                           identify preparer errors, they may underestimate the extent of the
                           problem. However, there is no evidence about the size of the

                           Studies of filed returns also suggest that a small percentage of paid
                           preparer users are poorly served. For example, we estimate that over 1
                           million of about 67 million taxpayers who used a paid preparer in 1998
                           may have overpaid their taxes by claiming the standard deduction when
                           they would have been better off itemizing. Similarly, a January 2003 report
                           by the Treasury Inspector General for Tax Administration estimated that
                           there were approximately 230,000 returns filed by paid preparers in tax
                           year 2001 where taxpayers appeared eligible for but did not claim the

                           Page 6                                                          GAO-03-610T
                            additional child tax credit. In addition, a 2002 IRS study of earned income
                            tax credit returns for tax year 1999 estimated over- and under claims of
                            $11 billion and $710 million, respectively. IRS reported that paid preparers
                            filed more than 65 percent of all earned income credit returns. It is not
                            clear how many of the over- or underpayments in these examples are the
                            fault of the preparer and how many are the fault of the taxpayer. It seems
                            likely that preparers bear responsibility for at least some of the over- or
                            underpayments. But, taxpayers could be at fault if they provide the
                            preparer with incorrect or incomplete information.

                            Knowledgeable observers confirmed that some taxpayers are poorly
                            served by paid preparers. For example, in the fiscal year 2002 annual
                            report, IRS’s National Taxpayer Advocate recommended requiring minimal
                            levels of competency for paid preparers in order to better serve taxpayers
                            and improve compliance. In another example, an IRS official responsible
                            for overseeing the local paid preparer penalty program told us that based
                            on the problems that he has seen and the amount of penalties he has
                            issued, he believes poor service is more common among unlicensed

                            Overall, the evidence from taxpayer surveys, studies of filed returns, and
                            knowledgeable observers demonstrates that some taxpayers are poorly
                            served by their preparers. The evidence does not allow a precise estimate
                            of this problem. The only representative information available—from
                            taxpayer surveys---suggests that a small percentage of taxpayers perceive
                            problems with their preparers. However, even a small percentage of all
                            taxpayers who use preparers equates to millions of people.

Problematic Preparer        Paid preparers can poorly serve taxpayers through a variety of
Actions and Inactions       problematic actions and inactions. For example, preparers may fail to
Result in Poor Service to   adequately probe and understand taxpayers’ personal circumstances. We
                            estimate that 3 percent of users did not believe that their preparer had
Taxpayers                   enough information to accurately complete their return. Such lack of
                            probing could explain the examples of taxpayers overpaying or
                            underpaying their taxes.

                            A more egregious example is ignoring known information about a
                            taxpayer’s personal circumstances. In one instance, a paid preparer told
                            us of a disabled taxpayer with limited English skills who overpaid his
                            taxes by about $3,500 to $5,000. The taxpayer had received notices for
                            several years from IRS stating he might be eligible for the earned income
                            tax credit. Each year, he took the notices to his preparer but the preparer

                            Page 7                                                          GAO-03-610T
took no action. Eventually he changed preparers and his new preparer is
working to amend the returns.

Other lapses are less severe because they are caught and corrected by IRS
and account for a small percentage of returns completed by paid
preparers. For example, in tax year 2000, IRS identified 357,000
computational errors on returns filed by paid preparers.

Some preparers provide questionable advice, which could contribute to
taxpayers owing additional taxes, interest, and penalties. For example, one
paid preparer told us of another preparer who set up certain trusts,
claiming that the trusts were legitimate tax shelters. IRS later determined
that the shelters were not legitimate. We do not know whether the
taxpayer was complicit with this scheme; however, the taxpayer, a
successful businesswoman, now owes a large amount of tax. In a related
example, another paid preparer advised a married couple with two
children that it was appropriate to file two tax returns with each claiming
the head of household status, claiming one child, and receiving the earned
income tax credit. The adjustments made to the taxpayers’ accounts in
subsequent examinations resulted in a bill in excess of $4,000, which the
taxpayers have no means to pay.

In extreme cases, some preparers engage in clear-cut fraud. Identified
instances of fraud are rare—IRS recommended prosecution on 162 cases
in calendar years 2001 and 2002. However, the consequences for taxpayers
and the government can be severe. For example, one preparer, who was a
former police officer, cost the Treasury about $1.1 million. After providing
clients with copies of their tax returns, this preparer altered the returns,
adding fraudulent dependents, child credits, and earned income credits.
The preparer filed all returns electronically, keeping part of the refunds as
a fee, unbeknownst to some clients. The clients received the remainder of
their refunds, which were inflated by an average of $1,860. The IRS audited
almost 700 of this preparer’s returns, with many clients owing additional
taxes and interest for multiple years. The preparer was ordered to pay
$342,446 in restitution to the IRS, but this did not help clients pay their
back taxes. Eventually, this preparer was sentenced to 51 months in

In another example, one paid preparer told his elderly client to provide
him with the checks to make her quarterly estimated payments. Although
he claimed these payments on the client’s tax return, he never gave the
checks to IRS—he kept them for himself. After receiving notices from IRS,

Page 8                                                          GAO-03-610T
the taxpayer visited the paid preparer who told her that IRS must have
made a mistake. The preparer is now in jail.

Problematic preparer behavior may not always result in taxpayers over- or
underpaying their taxes, it may also result in taxpayers overpaying for
services they do not understand. Preparers offer packages of services
geared toward accelerating the receipt of refunds, a service that can be
particularly appealing to low income taxpayers who often want or need
their refunds quickly. These packages typically include electronic filing
and Refund Anticipation Loans (RAL). RALs are short-term loans arranged
by preparers, issued by financial institutions, and secured by a taxpayer’s
refund. After the return is filed electronically, the preparer is notified by
IRS whether or not the taxpayer has outstanding tax debts or selected
other debts (e.g., student loans, child support). If the RAL is approved, the
taxpayer receives the loan and his or her refund is directly deposited into
the preparer bank account. Taxpayers who buy these services can get a
loan on their refund in 0 to 2 days, while taxpayers who file electronically
receive their refund in 10 days. Although some people are willing to pay
for the faster services, advertisements that promote RALs or large refunds,
such as those excerpted in figure 3, may leave taxpayers confused about
the benefits of the services they are purchasing.

Page 9                                                           GAO-03-610T
Figure 3: Excerpts of Preparer Advertisements for Large or Accelerated Refunds

                REFUND/24hr Tax Prep Tax Loans
                 Fast loans on refunds
                                         Get Your Money Back in 24 Hours
                    No More Audit Worries

                 Get FREE “101 hot tax tips“
                 and save $3000 or more on
                 your taxes
                 It's tax time again and you may be expecting
                 a refund. Why wait 6-8 weeks to receive it?

                  Tax Cash in 24-48 Hours
                 Lots of Cash Back
Source: Various Paid Preparer Advertisements.

These advertisements were not selected to represent the entire industry.
However, two tax clinic directors told us that some preparers do not
always explain the full costs of the services. Specifically, some taxpayers
are confused about the cost associated with RALs, alternatives to using
RALs, and the related interest costs. Consequently, taxpayers cannot
always weigh the cost of the service against the benefits that they might

Based on information we gathered, fees for these packages vary widely.
For example, while some preparers charge nothing for electronic filing
services, one preparer we spoke to (while we were posing as a potential
client) said he would charge us between $210 and $250 to file
electronically. Another preparer said he would charge $130 for a RAL on a
$1,200 refund due, which equates to an annual interest rate of about 400
percent. In another example, one preparer said he would charge $174 for a
RAL on a $700 refund due, which equates to an annual interest rate of over
900 percent. These examples are not representative of all preparer fees;
the exact amounts of preparer fees for accelerated refunds depend on

Page 10                                                               GAO-03-610T
                        various individual circumstances, such as the financial institution the
                        preparer uses to finance the loan and the amount of refund due.

                        Yet, such fees can significantly reduce the refund a taxpayer receives. One
                        tax clinic director informed us of a disabled taxpayer who was due a
                        refund of $1,230 on a simple return. After paying various fees, such as
                        return preparation and a RAL, she received a check from her preparer for
                        $414—about 34 percent of her expected refund. Taxpayers are using these
                        refund acceleration services in increasing numbers. Based on IRS data, the
                        National Consumer Law Center estimates that 12.1 million people received
                        a RAL in 2001, up from 10.8 million in 2000. Taxpayers paid $907 million
                        for these services in 2001, up from $810 million in 2000.

                        Another form of overpayment is purchasing services that may not be
                        needed. In an interview with an IRS employee, we learned of a taxpayer
                        who, for 2 years, went to a large tax preparer and paid about $200 for
                        returns that were not required to be filed. The elderly taxpayer’s sole
                        income came from Social Security and a small pension—about $6,000 per
                        year—and was below filing thresholds.

                        Although IRS is not responsible for ensuring the quality of service paid
                        preparers provide, it does have the authority to monitor and take action
                        against paid preparer misconduct. Specifically, there are three key offices
                        with a responsibility for detecting and taking action against cases of paid
                        preparers misconduct: (1) the Office of Professional Responsibility, which
                        sanctions attorneys, CPAs, and enrolled agents for ethical or conduct
                        violations; (2) Examination, which assesses penalties to any paid preparer
                        for violations discovered during an audit; and (3) Criminal Investigation,
                        which prosecutes preparers for fraudulent or other criminal activities. IRS
                        has taken action against some preparers. For example, according to IRS,
                        Examination issued 987 penalties totaling over $4 million in fiscal years
                        2000 and 2001. Additional information on programs administered by these
                        offices will be included in our follow-up report, which is planned for
                        issuance this summer.

                        Without paid preparers’ expertise, many taxpayers would be unable to
Taxpayers Can Take      submit accurate tax returns. However, taxpayers who use a paid tax
Steps to Help Ensure    preparer are still responsible for the accuracy of their return. According to
                        the law, taxpayers take responsibility for the accuracy of their returns
They Benefit from       when they sign them. Even if the preparer is at fault, it is the taxpayer who
Using a Paid Preparer   is ultimately responsible for any additional tax, interest, and/or penalties.

                        Page 11                                                          GAO-03-610T
Paid preparers are not always the cause of the problems discussed in this
statement. Taxpayers can contribute to these problems in several ways.
Paid preparers told us that they rely heavily on their clients’ oral
statements and documentation to complete tax returns. Paid preparers
take various steps to ensure that the tax returns they complete are
accurate, such as probing about personal circumstances and reviewing
income and expense documentation. However, the effectiveness of such
steps depends, in part, on the taxpayer. If taxpayers provide inaccurate or
incomplete information about, for example, their social security or if they
do not keep tax documents, such as wage or interest statements, preparers
cannot complete an accurate return. Also, some taxpayers wait until the
last minute to have their taxes prepared, which may limit the preparers’
opportunity to probe.

IRS and other organizations, such as the American Bar Association and the
Better Business Bureau, have produced guidance for taxpayers for
selecting and working with paid preparers. Some of the most common
advice from these organizations is shown in figure 4.

Page 12                                                        GAO-03-610T
               Figure 4: Precautions to Take When Using a Paid Tax Preparer

               •   When searching for a preparer, get recommendations from friends, co-workers, or
                   other trusted people. Find out if you qualify for free services.

               •   Interview the preparer before hiring to check out qualifications, experience, discipline
                   problems, and any history of complaints.

               •   Be sure you understand other services you will be getting, such as electronic filing or
                   Refund Anticipation Loans. Find out whether these services are optional, what they
                   will cost, and how they will benefit you.

               •   Don’t hire a preparer who guarantees a refund before seeing your tax documents or
                   whose fee is a percentage of your refund.

               •   Make sure your preparer understands your personal circumstances, income, and
                   expenses. Show your official tax documents to your preparer, including W-2’s and

               •   Review your completed return before you sign it. Check that your tax information is
                   correct. Even though someone else completed it, you are responsible for the accuracy
                   of every item on your return.

               •   Don’t sign a blank return and don’t sign in pencil.

               •   Make sure your preparer’s signature and tax identification number are on the return
                   before you submit it. Keep a copy of the final return.

               •   Don’t make checks for taxes due payable to preparers. Checks should be made
                   payable to the United States Treasury.
               Source: Internal Revenue Service, Tax Topic 254 - How to Choose a Paid Tax Preparer (Washington, D.C.); American Bar Association
               Section of Taxation, Tips for Filing Your Return with a Tax Preparer (Washington, D.C.); Better Business Bureau, Tax Preparers,
               (Arlington, VA); and Internal Revenue Service, 1040 Instructions (Washington, D.C., 2002).

               These precautions can help taxpayers avoid some of the problems we
               identified, such as overpaying their taxes or other more serious
               consequences, such as delinquent taxes, interest, and penalties owed to
               the Treasury.

               Mr. Chairman, this completes my prepared statement. At this time, I
               would be happy to address any questions the Committee may have.

               Jim White, (202) 512-5594
GAO Contacts   Jonda Van Pelt, (415) 904-2186

               Page 13                                                                                                          GAO-03-610T
                  In addition to those named above, Vincent Balloon, Larry
Acknowledgments   Dandridge, Katherine Davis, Michele Fejfar, Tre Forlano,
                  Evan Gilman, Brittni Milam, Libby Mixon, Cheryl Peterson,
                  Peter Rumble, and Kathleen Seymour contributed to this

                  Page 14                                                     GAO-03-610T