Mystery shoppers find widespread problems at tax preparers

Undercover investigators found pervasive incompetence, fraud and significant errors among a sample group of non-credentialed paid tax preparers visited in half a dozen states.

The "mystery shopping" report, from the Center for Taxpayer Rights, a nonprofit nonpartisan organization, noted that the majority of for-fee return preparers registered with the IRS are  uncredentialed. About 56% of the more than 684,000 tax preparers registered with the IRS at the beginning of this year aren't CPAs, attorneys, enrolled agents or actuaries, or participants in the IRS voluntary Annual Filing Season Program. The report pointed out those figures probably understate the number of non-credentialed preparers, because some, known as "ghost preparers," don't sign their clients' tax returns.  

During the 2025 filing season, the Center for Taxpayer Rights conducted a mystery shopping test in six different geographic regions to gauge the accuracy of the tax prep work by non-credentialed preparers. Many of the preparers visited by the undercover investigators didn't seem to understand the basic aspects of filing status, refundable and other credit requirements, cash income reporting, and deductible business and home office expense rules, according to the report.

The group contracted with six partners to test three scenarios at three separate sites in their geographic area. The partners included Low Income Taxpayer Clinics and nonprofits in Alabama, Arizona, New Jersey, North Carolina, Oregon and Texas.  The Center also developed three scenarios to test issues that are the subject of high audit rates or high noncompliance. Two of the scenarios involved family status issues — qualifying child, qualifying relative, filing status including head of household status, and Earned Income Tax Credit and Child Tax Credit claims. The third scenario involved sole proprietorship income, including cash payments, expense documentation and the home office deduction. 

"We need to enact requirements for anyone who is not otherwise licensed (attorney, CPA, EA, state-return prep program with CPE) and who prepares returns for a fee must register with the IRS and meet suitability standards and take a certain number of hours of continuing education each year," said Nina Olson, executive director of the Center for Taxpayer Rights and a former National Taxpayer Advocate at the IRS, who was the principal author of the report. "It's not enough to just plug in numbers into some software and think you are competent to prepare a return.  You need to know basic tax law and how to find answers if you don't know them."

The testers made 53 shopping visits, mostly to small, independent tax preparers. One of the testers visited a tax prep chain site. In the first scenario, which involved never-married parents living together in the same household with their two biological children, the preparers incorrectly computed the taxpayers' filing status, Child Tax Credit and tax refund amount. In the second scenario, which involved a household of two adults and one young child, all the returns incorrectly claimed a qualifying child instead of a qualifying relative, claimed incorrect refundable credits, and all the returns claimed an incorrect refund amount. In the third scenario, which involved a single person operating a sole proprietorship out of their home in addition to earning W-2 income, all the returns incorrectly reported sole proprietorship income, attributable in part to excessive home office and business deductions and not reporting cash income.

The preparers visited by the testers routinely failed to ask relevant questions about household composition and income. Even when the preparers asked relevant questions, their understanding or application of the tax laws was incorrect.  

The Consumer Federation of America and the National Consumer Law Center reported on similar problems in 2015 when they sent mystery shoppers to tax preparers in Florida and North Carolina.

The Center submitted Freedom of Information Act requests to the IRS, and the responses indicated the agency doesn't track the number of tax preparer misconduct complaints it receives via Form 14517-A, Tax Return Preparer Fraud or Misconduct Affidavit, so it has no sense of the scope of harm to taxpayers as a result of tax preparer actions, including stolen refunds.  

"While the IRS has identified 87,000 'high risk return preparers' since 2005, and those preparers are disproportionately involved in improper claims for the EITC and other refundable credits, it rarely assesses preparer penalties and even more rarely collects on those penalties," said the report. 

The Center made six recommendations in the report to address the concerns it identified through its research, survey and mystery shopping visits. It said Congress should authorize the IRS to establish a program to register and require minimum competency of federal income tax return preparers. Last month, the two leaders of the Senate Finance Committee — chairman Mike Crapo, R-Idaho, and ranking member Ron Wyden, D-Oregon — introduced a bipartisan bill known as the Taxpayer Assistance and Service Act containing a set of changes to IRS procedures and administration, as well as new standards and penalties for paid tax preparers.

"This report is proof that Congress needs to pass the bipartisan Taxpayer Assistance and Service Act to protect Americans with minimum standards for the paid preparers who fill out their tax returns," Wyden said in a statement Monday. "Congress has been waiting around for too long while crooked and incompetent tax preparers have been screwing up people's taxes or outright stealing their money. My bill with Senator Crapo would protect taxpayers and fix this nationwide epidemic of tax prep gaffes and grifts."

The report also recommended the IRS should mount a comprehensive nationwide consumer education campaign to help taxpayers identify competent preparers and protect themselves against incompetent or unscrupulous ones. It also said the IRS should reinstate and expand its Direct File free tax prep program, which the IRS ended last November. 

The report also recommended the IRS should track and publish the number of complaints of tax preparer misconduct it received, disallowed and accepted by the IRS for each calendar or tax year. In addition, it suggested the IRS should publish and regularly update the data relating to the assessment and collection of civil and criminal return preparer penalties and injunctions, by type of preparer. The report also said the IRS should prioritize the collection of civil preparer penalties it assesses. 

"Some have cast establishing a scheme of registration, testing and continuing education for uncredentialed return preparers as anti-small business," said the report. "But the results of our mystery shopping clearly demonstrate that many small and micro-businesses are actively harmed by the failure to ensure competent return preparation. The preparer's administrative burden of demonstrating suitability and attending continuing education programs is a small price to pay for protecting hundreds if not thousands of small businesses each such preparer touches. Further, establishing an actual credential for this category of preparers will enable many small business preparers to better distinguish themselves from and compete against unscrupulous and incompetent preparers."