Fewer tax returns were prepared accurately this year at the Volunteer Income Tax Assistance sites sponsored by the Internal Revenue Service compared to last year, according to a new government report.
The report, by the Treasury Inspector General for Tax Administration, found that the accuracy rates for tax returns prepared at volunteer tax prep sites decreased sharply from the 2010 filing season. Of the 36 tax returns prepared for TIGTA auditors, only 14 of them, or 39 percent, were prepared correctly.
The TIGTA auditors found that volunteers prepared the tax returns inaccurately for various reasons. In some cases they did not follow all of the required guidelines, such as verifying the identity or address of the taxpayer, or they used the intake sheets incorrectly. For three of the 22 incorrectly prepared returns, the volunteers knowingly modified the facts that the auditors presented to them. In two of those cases, they either removed or reduced the self-employment income reported on the return, and in the third case they allowed a dependency exemption for a child whom the volunteer knew did not meet the requirements of a qualifying child.
“The findings of this review are very troubling.” said TIGTA Inspector General J. Russell George in a statement. “The Volunteer Program plays an important role in helping many taxpayers, notably those who have low incomes, and the elderly, disabled, and limited-English proficient, participate in the tax system. Like all taxpayers, they deserve to have their tax returns prepared accurately. I am pleased that the IRS has agreed to our recommendations to address these problems.”
The IRS’s Volunteer Income Tax Assistance, or VITA, program has existed since 1969. In fiscal year 2011, the IRS awarded $12 million in federal matching grants to 179 organizations to help them file tax returns electronically and enhance the training of the volunteers who staff the sites. A total of 87,602 volunteers prepared approximately 3.1 million individual income tax returns at 12,326 volunteer sites in fiscal 2010.
The TIGTA audit covered both VITA sites and some that were part of the Tax Counseling for the Elderly program, co-sponsored by the AARP. The TCE program dates back to the Revenue Act of 1978.
The IRS has implemented an extensive quality review process in the program, the report noted, but that process has limitations and may not be providing reliable results. The report found that the current steps and processes do not ensure the integrity of volunteers, even though the volunteers have access to taxpayers’ personally identifiable information, such as Social Security numbers, driver’s licenses and home addresses. According to the report, the IRS does have a process to “help ensure willful acts of fraud occurring at Volunteer Program sites can be reported, but improvements are needed.”
TIGTA made a series of recommendations designed to improve the quality and controls of the program. The IRS agreed to implement TIGTA’s recommendations and said it has already put in place a number of improvements for next filing season.
“While a very small number, the IRS was deeply troubled by the handful of cases of unscrupulous behavior by volunteers,” wrote IRS Wage and Investment Division Commissioner Richard Byrd Jr. “As your report recognizes the IRS took immediate action as soon as we became aware of this behavior and put in place additional controls to prevent similar cases in the future.”
Byrd acknowledged that the sharp decrease in accuracy rates this year is “a serious issue,” but contended that the scenarios developed for the TIGTA reviews were not representative of the typical scenarios seen in the population of taxpayers serviced by the VITA and TCE programs.
TIGTA noted in its report that it had changed the scenarios this year after its review of the volunteer sites showed a 90 percent accuracy rate last year. The TIGTA auditors suspected that last year’s unusually high accuracy rate could mean that the volunteers had come to recognize the scenarios the auditors were using and knew that high-volume sites had a higher probability of being tested. In addition, the IRS was aware last year of the site visits because the auditors were doing other tests at the sites after they had tax returns prepared.
The IRS emailed a further response to the report. “The IRS greatly appreciates the community service that its Volunteer Program partners provide by ensuring that underserved segments of the taxpaying public receive quality tax preparation assistance,” said IRS spokesperson Michelle Eldridge. “This year, more than 88,000 volunteers helped nearly 3.2 million taxpayers prepare federal and state tax returns. The IRS has accepted TIGTA’s recommendations and will continue to make improvements to the Volunteer Program. But it is important to note that TIGTA's study was not statistically valid and focused on uncommon tax scenarios that affect a small fraction of returns handled at these sites. The IRS uses a statistically valid process to test volunteer tax preparation and is confident that the vast majority of income tax returns prepared by volunteers are completed accurately. IRS takes intentional misreporting of tax information very seriously and took immediate steps in three instances to remove individuals involved in questionable behavior from the Volunteer Program. In a subsequent review the IRS found no systemic problems with the volunteer organizations involved and put in place additional controls to prevent similar cases in the future. “
The National Community Tax Coalition, which represents many of the volunteer tax prep providers, also had a response to the TIGTA report. "The TIGTA report identifies a number of important issues and problems regarding certain inaccuracies in volunteer-prepared tax returns," wrote spokesperson Carissa Poroko. "The National Community Tax Coalition takes this information very seriously and as a result of these issues, has already instituted a number of new procedures to address the problems that have been identified and improve the overall accuracy of the VITA program in the future. Many of the new procedures come directly from the TIGTA recommendations outlined in the report. The small number of situations identified in the TIGTA report should not overshadow the vital services our 75,000 volunteers provided in processing 1.3 million tax returns for low- and moderate-income individuals and families this year. VITA’s focus on underserved low- and moderate-income populations and reliance on the most advanced technological tools ensure greater access to a safe and free assistance option for taxpayers while simultaneously producing tremendous administrative cost-savings to the IRS."
She pointed to another recent evaluation of the VITA program conducted by the Stakeholder Partnerships, Education and Communication department of the IRS's Wage & Investment Division. That evaluation confirmed that during 2011, the overall national accuracy rate for VITA in preparing individual tax returns rose 2 percentage points from last year to 87 percent.
"This evaluation was based upon an assessment of 724 cases from across the country," Poroko noted. "The TIGTA audit reviewed only 36 returns. The IRS report effectively validated NCTC’s long-standing commitment to accuracy as a top priority. In fact, independent evaluations have consistently reported accuracy rates of VITA among the highest of all types of tax preparation services. To maintain consistently high-quality standards across the field, VITA volunteers undergo up to 40 hours of extensive training and testing annually."
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