Jennelle Coleman Silkert of Dayton in 2009 did what millions of Americans do every year — ask a tax preparation service to do her taxes.
But instead of the $2,221 refund she was expecting from the IRS, Silkert received $1,321, or $900 less. The Internal Revenue Service had discovered a stimulus check that the tax preparer, Jackson Hewitt, failed to report as income.
Silkert filed a complaint with the Ohio Attorney General’s office after she said Jackson Hewitt wouldn’t waive any of its $309 fee.
“I asked them to consider that they did my taxes wrong,’’ Silkert said. “I was not looking for all of my money back. I was looking for a reduced preparation fee. And they told me absolutely not.’’
Millions of Americans over the next few months will use a tax service to prepare their 2013 tax return — some lured through the promise of instant tax refunds and a bigger refund check. But consumer advocates warn filers to be careful: The industry is highly unregulated, and consumers hoping for bigger returns can instead get hit with high fees, sloppy returns and an inquiry from the IRS.
“The massive amount of fraud, incompetence and abuse in the tax preparation industry is astounding,” researchers for the National Consumer Law Center said in a report released late last year. “There is an enormous level of incompetence and corruption across the entire industry.”
Mark Steber, chief tax officer for Jackson Hewitt, said he wouldn’t comment on individual cases, such as Selkirk’s. But he said the company takes all complaints seriously and acknowledged that with more than two million clients and 28,000 tax preparers, mistakes do happen.
“Most of the time, it is our fault,” he said. “We’re not perfect and we have people who provide poor service and we try to weed that out and get the customers happy as fast as possible without getting it escalated.”
Jackson Hewitt uses an extensive network to monitor the concerns of customers and franchise owners and managers, Steber said, including allowing clients and employees to leave anonymous complaints on designated telephone lines.
“There’s nothing more important to our company” than quality service, Steber said.
The Ohio Attorney General’s office said it has received more than 650 complaints over the past five years from consumers about paid tax preparation services. The AG’s office helped recover $90,000 for the consumers, just a small portion of the $1.1 million they said they lost.
In November, a federal judge ordered Instant Tax Service, one of the nation’s largest tax preparation services to shut down after finding the owner lied to federal authorities and defrauded customers.
Some of the offices are still operating. A person who answered the phone at the Dayton office Friday and identified herself as a manager, said the company was sold to a different corporate owner.
Instant Tax Service, founded in Dayton by Fesum Ogbazion in 2000, operated hundreds of franchises in 35 states.
The U.S. District Court for the Southern District of Ohio found in part that Ogbazion and his franchisees filed tax returns for customers without their permission, forged customers’ signatures and willfully failed to pay more than $1 million in employment taxes.
The IRS estimated Instant Tax Service’s financial harm in one year in five cities where it operated at $10 million to $25 million.
The tax preparation industry is vastly unregulated and lacks basic competency and training standards, according to the NCLC study.
The advocacy group deployed “mystery shoppers” — testers who pose as customers — who found it difficult to get an accurate quote for services ahead of time. Fees were later added, eating up a big portion of an anticipated refund check, said David Rothstein, who contributed to the report and for the past 10 years has worked with the Volunteer Income Tax Assistance program.
Unsuspecting consumers could be exposed to IRS audits, penalties and interest and even criminal sanctions, the study said.
The National Association of Tax Professionals, which serves tax preparers, said it did not want to comment on the report.
Rothstein said hairdressers — regulated in all 50 states — face more rigorous standards than tax preparers, which he said are unregulated in 47 states.
“A bad haircut can be a bad day but a bad tax return can go on for years,” he said.
The NCLC recommends that states require paid tax return preparers to register with the state, pass a basic competency exam, take 60 hours of initial training and 15 hours of annual continuing education. The center also recommends states require standard fee disclosure by the services so consumers can know the cost going in.
“It is so unregulated. It is the wild, wild west,” Rothstein said.
Justin Stanek, aide to Ohio Sen. Tim Schaffer, a Lancaster Republican who chairs the Senate Ways and Means Committee, said Schaffer is considering introducing a bill to usher in some basic standards for paid tax preparation services. It is unclear how much support such a bill would have, however.
Taxpayer, not preparer, responsible for return
The Ohio Department of Taxation doesn’t track how many of the 5.3 million tax returns filed each year are prepared by paid services.
Rothstein’s research shows that nationally, 72.1 million of 131 million tax filers used a paid service — a tax attorney, an accountant or a preparation company. He noted that about 60 percent of the 26 million people eligible for the Earned Income Tax Credit pay someone to prepare their returns.
Consumer advocates say filers need to be aware of the risks of having someone prepare their return, particularly if they lack training and qualifications. Only a certified public accountant or tax attorney can represent filers before the IRS or other tax bodies, said Laura Hay, chief operating officer of the Ohio Society of CPAs.
“Ultimately the responsibility for preparing an accurate and truthful return is the taxpayer’s,” Hay said.
She urged filers to ask a set of questions before hiring a tax preparer, such as:
- How long have you been in business?
- What training and qualifications do your employees have?
- Will you provide references?
- Can and will you represent me before the IRS?
- What are your fees, and are they tied to the results of the work?
- Will you sign the return?
She also warned of a red flag: Beware of companies that promise you more money than if you went somewhere else.
All credible preparers should get the same results, she said.
Several groups, including the Ohio Benefit Bank and AARP Foundation, offer free tax prep assistance programs.
The Ohio Benefit Bank’s 4,000 trained volunteers helped 25,000 low to moderate income Ohioans file their returns last year and counseled people on signing up for an array of government benefits, said Lisa Hamler-Fugitt, director of the Ohio Association of Foodbanks.
“You don’t need to pay somebody to file,” Hamler-Fugitt said. “Keep your whole refund.”
AARP Foundation’s 1,500 volunteers in Ohio undergo about a week of training on the latest tax law and software changes and must pass a competency test, said Fred Colucci, a state coordinator for the program in Ohio. Volunteers, including 270 in the Dayton and Cincinnati region, are currently in training getting ready to help roughly 115,000 Ohioans file their returns this season, he said.
Filling out a tax return can be intimidating, especially given the complexity of the ever-changing tax code, Rothstein said.
“It is daunting. It scares people,” he said. “But with some assistance at one of these free clinics … they can handle it.”
Free tax preparation services in Ohio
- AARP Foundation: Program starts Feb. 4, is free and open to anyone. To schedule an appointment, call 888-227-7669 or visit aarp.org/findtaxhelp.
- Ohio Benefit Bank: Program starts Jan. 31, is free and is open to low and moderate income Ohioans. To find out more, call 800-648-1176 or visit ohiobenefits.org.
- IRS Volunteer Income Tax Assistance (VITA): Program starts Jan. 27, is free and is targeted to households making less than $52,000 a year. To find out more, call 800-906-9887 or visit irs.treasury.gov/freetaxprep.