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Use Caution with Tax-Preparation Franchises

Two recent lawsuits have shed light on tax-preparation franchises, raising red flags from unwitting taxpayers looking for fast, affordable service just in time for tax season.

The fight between H&R Block and Intuit, parent company of TurboTax software, has spilled into federal court and turned nasty. At the same time, federal officials seeking stricter standards for tax preparers at these types of firms were denied by a federal judge.

The irony of the cases is that the federal tax authorities were blocked from raising standards for credentialing tax preparers at a time when even the largest tax-preparing franchises are taking shots at each other for allegedly using uncredentialed labor – which underlines why the IRS sought to raise the bar for who can do your taxes.

It all translates into a big disaster for consumers who have depended on the two services for decades — and a reminder that finding individual attention from local, accredited financial planners and tax preparers may just be the safest way to go in the long run.

That’s because tax franchises, which can be a cheap alternative to hiring individual tax-preparation businesses, have reportedly charged hidden fees that pump the cost beyond what the taxpayer might have paid to a private firm. There have also been allegations that minorities and the working poor were targeted.

To be fair, however, both of the parties involved in the latest court spat have assured the public that their employees are certified tax preparers with experience. Still, that didn’t stop Intuit from alleging H&R Block employees also worked as retail sales clerks and plumbers in hilarious commercials, drawing this tart retort from H&R Block CEO Bill Cobb.

Regardless of whom you believe, the tax-preparation chains have had their share of successes. Online taxpayer forums gush praise as much as scorn for these businesses, so it truly depends on which franchise location is used since they belong to different owners.

However, it should be noted that in 2006, congressional investigators posing as everyday taxpayers entered 19 different tax chains to file their returns. They found errors in every return, and those errors typically came out in favor of the taxpayer at the expense of the government. The returns brought refunded more money to the taxpayer than they were entitled, according to this Wall Street Journal article.

To make matters worse, a federal judge recently blocked the IRS from requiring all tax preparers to register with the federal government — an attempt at oversight of this burgeoning industry. This compounds the perception problem these tax-preparation chains now face, and it’s a big one considering their client base: In 2012, H&R Block alone accounted for 1 out of every seven tax returns, according to court records from 2011.

Here’s how I feel: A taxpayer should perform their due diligence before entrusting their tax return to a preparer. The federal tax return, once it is signed, can expose the taxpayer to perjury (if its contents are knowingly inaccurate). The responsibility lies with the client, not the tax preparer.

Personal Financial Specialists and licensed accountants/CPAs have several advantages. They are more knowledgeable because they must keep up with the latest tax rules to maintain their license; they are more accessible throughout the year, not just tax season; and because of this, their financial strategies guide you from January 1 until the end of the year to minimize your tax burden, not just respond to it once tax season begins.

And did I mention oversight? CPAs must face monitoring and compliance checks, as well as attend continuing-education events. We don’t just report back to our store manager or franchise owner. It should bring the consumer comfort to keep this in mind not just during tax season but months before the filing frenzy starts.

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