Tax Preparation Services May Now Become Necessary

When the average customer walks into one of the two big tax preparation franchise chains, they go in expecting that the person behind the desk has an inkling about taxation and the laws, deductions, etc that comes with being a tax preparer. Sadly that's not always the case and I can testify to that as someone who worked for several of the major franchise operators training tax preparers. Don't get me wrong, there are some very well trained and competent people working there. For the most part, though, even those who are taking the tax course who barely squeak by with a 'C' or 'D' find themselves behind that desk come the middle of January.

To more protect themselves than you the customer, someone at these major chains came up with what they call "The Gold Guarantee" at one place and "Piece of Mind" at the other. What is it? It's an insurance plan that they sell like this.

"Mr. and Mrs. Smith, if there is a mistake on this return and the IRS audits you we will pay for your legal representation and cover any penalties up to $5000." Sounds good right? Well we need to take a closer look at how it really works.

How It Works

You, as a franchised tax prep customer are already paying top dollar for tax preparation services as these chains are only open for four months out of the year, and yet, like other businesses, must keep the office rented for 12 months out of the year. If you make all your income in the first third of the year and none for the rest of the year, logic, (and capitalism) dictates that you have to charge more for your services than someone who gets a steady stream of income for all 12 months in the year.

So here you are paying top dollar for the preparation services and you are offered an insurance plan that covers you in case there are mistakes in the return. Pay attention to that word, 'mistakes', that is going to be important. One of the rules as a tax preparer is to believe your client, no matter what.

So if you have a client whose income for the year just hovers at the maximum limit for Earned Income Credit, (usually about $15000) and who has four or more children, living on their own, as someone with EIC will be and they claim that they donated $9000 in shoes to Goodwill, (because they were Versace shoes, and yes, that did happen to me) as your preparer, I have to believe you and put that into your tax return. After all, that is what you represented to me and who am I to doubt you?

So the first thing to remember about these Guarantees is that it won't cover misstatements by the client. There are legitimate times for estimating certain deductions, and we try to do the best we can, but these insurance plans do not cover you if you intentionally hide something from the preparer. These plans won't cover anything you unintentionally omitted from the preparer, because many times we forget about this lotto winning or that retirement disbursement. That's what they created the amended return for, those little mistakes, which the IRS is kind enough to give us three years to fix.

So if these plans, which you pay an additional $30 or $40 for, do not cover the customer's mistakes, then whose mistakes are covered? Have you guessed yet? Yep, these plans are insurance plans to cover the mistakes of THE PERSON PREPARING YOUR RETURN.

These plans are extremely self serving for the tax prep chains. If their poorly trained, or newbie tax preparers miss a box, or hit the wrong key and you get audited as a result, THEN AND ONLY THEN, does this insurance plan kick in.

Then, it's a matter of proving that the mistake was on the part of the preparer and NOT a misstatement by you, your spouse, etc. How do you prove that? It is very difficult indeed, because the attorneys and the insurance companies typically don't like blaming their clients for mistakes. (HMO's anyone?)

With the extremely high turnover rate at the tax prep chains and the likelihood of you being in a different city or state actually collecting on these guarantees is a long shot should you actually be audited.

The Pressure to "Sell" These Plans

As one of the managers at a tax preparation franchise chain I can tell you that the pressure to sell these self-serving insurance policies is immense. It turns each of these preparers into little insurance agents as for each Gold Guarantee or Piece of Mind policy sold, they get a commission on top of their hourly wages.

There are inter-office challenges and contests to see which can sell the most of these plans, so chances are you are going to buy one whether you want it or not. The charges are hidden in the paperwork and you are just told what refund you are getting