National tax preparation chains are exploiting the working poor by forcing them to spend a significant portion of the Earned Income Tax Credit just to pay for filing their taxes, according to a new report, and H&R Block is firing back.
The report, from the Progressive Policy Institute, a liberal think tank, found that workers eligible for the EITC continue to spend fees averaging around $400 at national tax preparation chains such as Block and Liberty Tax Service. The report was coauthored by Paul Weinstein Jr., a senior fellow at PPI and director of the Public Management Graduate Program at Johns Hopkins University, and Bethany Patten, a policy and research manager at Excellent Schools Detroit.
In a recent survey of storefront operations in Baltimore and Washington, D.C., the researchers found that those eligible for the EITC, who are typically low-income workers with children, would spend between 13 and 22 percent of their refund this year at local tax preparation outlets. In Baltimore, where the average EITC refund is $2,335, the cost to file ranged from $309 at H&R Block to $509 at Liberty Tax Service. In Washington, D.C., where the average EITC refund is $2,351, the cost to file ranged from $315 at H&R Block to $485 at Liberty Tax Service.
H&R Block challenged the study. “This ‘report’ from the Progressive Policy Institute is not worth the paper it was written on,” said a statement forwarded Thursday by spokesman Gene King. “It is a highly-biased work co-authored by Paul Weinstein, who, by the way, presented as a speaker at an Intuit-sponsored forum in January 2015. Intuit is the maker of TurboTax. With that said, and taking into consideration the numerous examples of misleading or outdated information contained in this report, as well as the lack of transparency regarding its funding, we strongly recommend that media, policy makers and the public disregard it entirely given its lack of credibility.”
In their study, Weinstein and Patten contend that national tax preparation chains are targeting EITC filers by locating in areas where the largest numbers of EITC claims are made. ZIP codes with the highest level of EITC filers have approximately 75 percent more tax preparers per filer than moderate-EITC ZIP codes. The study found “a clear relationship” between the share of EITC filers in a ZIP code and the area’s saturation of tax preparation chains.
Government studies, as well as those by nonprofit organizations, consistently show a high error rate for returns filed on behalf of EITC beneficiaries by paid tax preparers, according to the report. Two studies by the Government Accountability Office found an error rate of 89 and 94 percent respectively. Last year the head of the GAO stated that in an analysis of IRS data, an estimated “60 percent of returns prepared by preparers contained errors.”
“These realities demand a public response,” wrote Weinstein and Patten. “But proposals to further complicate the tax code in the name of reducing fraud would only make the problem worse. Instead, U.S. policymakers should establish a national goal of reducing the dependence of low-wage workers on paid tax preparers. Specifically, this would mean taking steps to simplify EITC rules and requirements, by requiring all paid preparers to take competency exams, increasing access to free filing programs, and/or streamlining the federal income tax code in its entirety. A combination of these reforms would allow low-income workers to keep more of their tax credit while also raising standards within the paid tax preparation sector.”
H&R Block argued that the methodology behind the report was shoddy. “To begin, the research and methodology is extremely poor,” said Block. “Significant findings in the “study” are based on “an informal survey” of major tax preparers over six days in two cities. There was no comparative assessment of how taxpayers are or aren’t served by the DIY software providers (of which H&R Block is the second largest provider). There also was no mention of the error rate for individuals filing their own EITC returns.
H&R Block was offended that the report casts doubt on the company’s efforts to prevent the enormous levels of fraud and improper payments associated with the EITC. “H&R Block simply made the common sense suggestion—and obtained concurrence—that the eligibility questions should be the same for all taxpayers, regardless of the methodology they use to file,” said the company. “H&R Block’s efforts are about preventing the $14-$17 billion in annual fraud and improper payments so that the EITC program is protected for taxpayers who are the intended beneficiaries—and nothing more. Anyone who argues H&R Block’s motives are different is not really committed to fixing a gaping hole in EITC eligibility (or to reducing the billions of dollars in improper EITC payments) that will continue until unequal filing standards are addressed. All taxpayers, and especially the intended beneficiaries of the EITC program, deserve equal treatment.”
The report follows up on a 2002 study by researchers at PPI and Brookings Institution, which found that tax preparations services, clustered in low-income neighborhoods, cost workers eligible for EITC refunds about $1.75 billion.
The Earned Income Tax Credit was established in 1974 as an anti-poverty measure. It has become the federal government’s largest safety net program, last year providing $66.7 billion to 27.5 million Americans. It is especially valuable to low- and middle-income workers, since it provides a direct credit against taxes owed rather than a deduction from reported income. It is also a refundable credit, meaning an eligible worker can receive a refund even if the credit exceeds what would have been his or her federal income tax liability.
H&R Block said it found the report offensive. “Perhaps the most offensive aspect of this report is the absolutely unfounded suggestion that H&R Block is in any way preying on the poor,” said the company. “There’s simply no other tax company doing more to help low income families than H&R Block. We are experts on EITC and know how to help qualifying clients. We work hard to get our clients their maximum refunds and, importantly, we stand behind our work by guaranteeing its accuracy. In addition, H&R Block is one of the largest Free File Alliance (FFA) providers, filing one out of 4 FFA returns – that’s free tax support for those making under $62,000 a year. Further, we get 85 percent of our clients—from all demographics and income levels—a refund with the average amount of $3,000.”
Block contended that it is not taking advantage of low-income workers. “It’s also an absolute falsehood to suggest we try to take advantage of lower income Americans by locating our offices in their neighborhoods,” said the company. “The fact is H&R Block’s 10,400 offices in the United States are located in all kinds of communities. In fact, we have an office within five miles of 95 percent of Americans—covering all demographics and income levels—and we are pleased to represent each and every one of our clients. H&R Block has a proud 62-year history of serving clients. We have prepared over 680 million tax returns since 1955. We have 80,000 tax pros—a virtual army—working every day to serve taxpayers with the quality they deserve and have come to expect.”
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