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Senate Witness Misrepresents IRS Certification and Training for Tax Preparers

April 10, 2014 at 2:35 PM

Legitimate disagreement in policy debates is part of what democracy is all about.  Gross misrepresentation is not.  And it’s particularly inappropriate when it comes before a congressional committee.

Yet that’s what occurred Tuesday when Dan Alban, a lawyer at a libertarian legal institute who brought the lawsuit that bars the IRS from attempting to rein in incompetent or unscrupulous tax preparers, testified before the Senate Finance Committee.  Alban repeated his falsehoods in a Washington Times column Wednesday morning.

Alban was trying to counter striking IRS data showing very high error rates on tax returns claiming the Earned Income Tax Credit (EITC) that were prepared by preparers who are neither certified (they’re not lawyers, CPAs, enrolled agents, or the like) nor affiliated with a national tax preparation chain.  Such preparers handle 43 percent of all commercially prepared tax returns claiming the EITC.  As the IRS National Taxpayer Advocate Nina Olson has reported, nearly half (49 percent) of the returns they prepared had errors that averaged 33 percent of the amount claimed.

The IRS has sought to require training and competency tests for commercial preparers, but Alban’s lawsuit convinced the courts to cripple the IRS initiative on the grounds that Congress hadn’t given the IRS the authority to do it.  The court ruling thus poses a question for Congress:  should it give the IRS this authority in order to protect the federal Treasury as well as tax filers?  At Tuesday’s hearing and in his Washington Times piece, Alban insisted it should not.

One of his prime arguments he advanced in his testimony is that “… licensing and IRS-mandated training are largely ineffective.  For example, IRS trained-and-certified preparers in the VITA volunteer program were found by the Treasury Inspector General for Tax Administration (TIGTA) to have a 61 percent error rate in 2011.”

But the 61 percent figure is a canard.  The best estimate in 2011 of the error rate for returns prepared at the tax preparation sites in question — Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites, for which IRS trains the volunteers who provide tax preparation assistance — was 13 percent.

How did Alban derive his 61 percent error rate figure?  In 2011, the Treasury Inspector General picked a small number of VITA/TCE sites and tested how they would do with several complex, uncommon, challenging tax scenarios.  As the IRS has explained, they were “uncommon tax scenarios that affect a small fraction of the returns” that these sites handle.  The error rate on those particular uncommon scenarios was 61 percent.

As anyone with just the most basic understanding of taxes or statistics will recognize, a rate of error on uncommon, error-prone scenarios cannot be applied to all tax returns that these sites handle.  Moreover, the Inspector General review was a small one whose results were not statistically valid, as the IRS has also explained.

When the IRS conducted its Quality Statistical Review, a statistically valid review for the entire population of returns that these sites prepare, the accuracy rate was 87 percent in 2011.  A subsequent IRS review of VITA/TCE sites found a 91 percent accuracy rate in 2013.

These data aren’t obscure; they are contained in the TIGTA report itself.

Vigorous debate is essential in our democracy.  Misrepresenting data to Congress and the public is not.