Personal Injury Law

Be Wary of Tax Preparers

By Billy Cunningham

Impact Alabama, a Birmingham, Alabama based non-profit organization that helps low-income Alabama residents sent undercover staff with recording devices to 13 seasonal tax preparers across the state and found that none of them correctly prepared tax returns. The offices visited ranged from independent storefront operations to national chains. The public needs to be wary of these operations.

This type of unprofessional practice hurts the poor and can affect our clients. All of us should warn our clients and friends to stay away from organizations that do not have enrolled agents who have passed an IRS test. I have a client who was awarded personal injury money in medical malpractice case and reported it to the IRS through one of these seasonal tax preparers who did not properly note that it was personal injury proceeds. He was taxed on the money. After numerous telephone calls to the preparer and writing three letters on his behalf to the IRS, he finally received the proper adjustment. However, he died before it was resolved and his estate had to deal with the problem.

Impact Alabama is a student service organization which trains college students to prepare tax returns for low-income, working families for free. With more than 350 students in 16 locations across the state, it is giving the poor an opportunity to have their tax returns prepared correctly and not to be subject to unprofessional service companies who overcharge and often incorrectly prepare returns.

"The undercover review revealed that many commercial tax preparation companies confuse and abuse their customers with poor disclosures, high fees and costly miscalculations," Stephen Black, president of Impact Alabama, said Thursday.

Impact Alabama staff members used their W-2 tax forms and described themselves as parents with one or two children who lived with them less than six months of the year. For parents to claim the Earned Income Tax Credit, they must have a child more than half the year. While this may allow the parent to receive a refund, the deduction is incorrect and can result in the taxpayer assessed penalties and interest if an audit reveals that the assertion of having the children six months is untrue.

All 13 preparers computed that the ‘parent’ would get refunds ranging from $65 to $6,247 when in reality they each owed $112. That does more than cheat the government, Black said. It can cause the other parent, who is rightfully entitled to the credit, to have a tax return held up for months until they can verify the children's residence, he said. Then the parent who wrongly filed may be assessed the penalties and interest discussed above, resulting in even more trouble for them. In addition, ten preparers did not report outside income, eight did not report interest income, and 12 allowed the taxpayer to claim "head of household" status without being qualified for it.

Full post as published by Mobile Personal Injury Lawyer on January 26, 2009 (boomark / email).