In the Two Minute Drill, we explain complex issues in politics in 250 words or less (roughly the amount of words it takes the average adult two minutes to read on a monitor). Politics just isn’t always that complicated. Without the fluff and partisan bias, even the most complex of our political differences can be explained succinctly. This week: taking a look at the U.S. tax preparation industry. This is The Two Minute Drill for Friday, April 11, 2014.
Because income tax laws are complicated, many taxpayer seek outside assistance with their taxes, most commonly in the form of a tax return preparer or preparation software like TurboTax. Under IRS regulations, a tax return preparer is defined as “an individual who, for compensation, prepares all or substantially all of a federal tax return or claim for refund.” The right tax preparer or preparation service can save you hundreds or thousands of dollars on your taxes. But the industry is largely unregulated, and the IRS has little ability to protect taxpayers from incompetent tax preparers.
The Explanation (250 or Bust)
In 2011, of the 142 million individual income tax returns filed, about 79 million of them were filled out by tax preparers, an industry that generates nearly $6 billion in revenue annually. Many of these tax preparers, however, do not have to meet any standard of competency in order to prepare taxes.
In February, the Government Accountability Office (GAO) went undercover to study a small number of tax preparers and found that 17 out of 19 made mistakes. Despite the small sample size, the results are illustrative of earlier and larger studies. A 2008 GAO study, for example, found that paid preparers had a significantly higher error rate (60 percent) than audits of returns prepared by ordinary taxpayers (50 percent).
The IRS issued rules in 2011 to address concerns about the performance of some paid preparers. Relying on an 1884 law empowering it to “regulate the practice of representatives of persons before the Department of Treasury,” the IRS tried to implement a mandatory exam and a continuing education requirement for all tax preparers who were not CPAs, attorneys or enrolled agents. But federal courts intervened, asserting that the IRS lacked authority to do so.
More than half of all tax preparers (55 percent) are not licensed or certified by the IRS or any state. And only four states – Oregon, California, Maryland and New York – regulate tax preparers. Everywhere else, anyone can hang out a sign and fill out tax forms. It’s up to Congress to determine whether that is appropriate.
Word Count: 249
The Five Most Interesting Things We’ve Read This Week
Here are the five most interesting articles (both political and non-political) we’ve read this week:
- The UConn Huskies won the mens NCAA national basketball championship on Monday night. But here’s something most of their players will not be taking home: A diploma. “UConn graduates 8 percent of its players, according to the most recent NCAA statistics. To put it another way: of the 12 players who started as freshmen eight years ago, exactly one managed to finish a college degree or leave UConn in good academic standing.” From Vox: UConn Basketball’s Dirty Secret.
- “Managers should apply a principle of minimum intervention into workers’ free time and keep the number of people whose spare time is disrupted as low as possible.” France is not alone. From The Telegraph: Out of Hours Working Banned by German Labour Ministry.
- “Food insecurity . . . is increasingly on the radar of administrators, who report seeing more hungry students, especially at schools that enroll a high percentage of youths who are from low-income families or are the first generation to attend college.” From The Washington Post: More College Students Battle Hunger as Education and Living Costs Rise.
- “The ongoing battle for labor rights and unionization shifted to a new state, as an Ohio legislative panel changed a budget bill to clarify that student-athletes would not be considered employees of a state university . . . ‘I think this is a statement of what we all thought was obvious,’ House Appropriations Committee Chairman Ron Amstutz said.” From ESPN: Ohio Bill: Bill: Athletes Not State Employees.
- “Ultimately, the cycle of attack and apology, of disagreement and boycott, will leave us with fewer and fewer people talking more and more about less and less.” From The Atlantic: The Culture of Shut Up.
And in case you missed it, check out The Weekly Column. This past week examined the federal budget and what our federal income taxes pay for. Read the Column – Where Do Your Federal Income Tax Dollars Go?