Over the past few weeks Iowans received and deposited their tax refunds without much thought. Tax returns are one of the most important financial transactions of the year. Given the gravity of this annual filing, many Iowans paid for help preparing their return, in the belief that a qualified professional was working in their best interests.
As a tax professional, I take pride in knowing I’ve provided quality services for my clients at tax time, and most preparers feel the same. Unfortunately, though, not all paid tax preparers have had their clients’ best interests at heart — or even understood basic tax issues. In fact, paid tax preparers in Iowa were not required to demonstrate tax competency at all, or to meet any ethical standards. Some bad actors did serious and lasting financial harm to taxpayers who mistakenly trusted them. That is why I’m proud to have led the effort to protect Iowans through a new law that holds tax preparers in Iowa to higher standards of integrity, ethics and education.
We’re conditioned to think most industries have compliance standards for workers. Cosmetologists and taxi drivers may even be required to display their certifications and credentials. It is not surprising then that most Americans incorrectly believe their paid tax preparer has some training; has demonstrated a level of competence; and adheres to a code of ethics. In reality, 60 percent of paid preparers nationwide are not credentialed, unlike attorneys, certified public accountants, or enrolled agents. The truth is, in most places, anyone can call themselves a “tax preparer” without any training or skills. This situation leaves both the system and the individual taxpayer vulnerable to abuse.
Disturbingly, a 2014 Government Accountability Office study found widespread and significant errors during a “secret shopper” test on paid tax preparers. Only about 10 percent of them calculated the correct refund amount. Whether due to incompetence or fraud, mistakes on an official tax return can result in taxpayers missing out on a deserved refund. Or worse, they may end up owing the government thousands of dollars. What’s more, the taxpayer is liable for these mistakes, not the preparer.
Iowans deserve protection from bad or incompetent paid preparers. I applaud Gov. Kim Reynolds for signing HF 590 into law. This measure takes common-sense steps to protect Iowa taxpayers from bad actors. It allows the state to track who is filing tax returns by requiring preparers to include their federal ID number on state returns. Once the Iowa Department of Revenue knows who is preparing returns, they can better identify unscrupulous preparers and seek a court injunction to shut down their activities.
The law also requires preparers to complete 15 hours of continuing education every year, including professional ethics, which is available for free through the Internal Revenue Service. This level of education is consistent with voluntary requirements to represent a client before the Internal Revenue Service.
These simple steps will allow the State of Iowa to detect and stop consumer fraud, while ensuring tax preparers are up to date on changes to the tax code. Iowans deserve an accurate tax return completed by a trustworthy preparer who appropriately handles their financial and other sensitive information. This new law will help protect Iowa taxpayers during tax season and beyond.
• Michael Bergan is a Republican state representative from Dorchester.