You Get What You Pay For: Free Filing Programs

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http://www.ninjatax.com

October 21, 2009

The IRS offers several programs to assist low-income and elderly taxpayers in preparing their income tax returns. These programs generally make use of volunteers.

The Treasury Inspector General for Tax Administration (TIGTA) puts out an annual report gauging the accuracy of these programs. Unfortunately, it appears that you get what you pay for.

The 2009 audit indicated that the accuracy rate of the volunteer programs actually fell for the first time, to 59% from 69% in 2008. Said differently, this means that 41% of returns filed through one of the programs had some sort of error.

We applaud volunteers for wanting to assist taxpayers under these programs, but the fact remains that training to become a volunteer is not comprehensive and volunteers do not necessarily have the knowledge to deal with the variety of tax issues thrown at them. When I went through the training a number of years ago, it was little more than training on a software package, and that is just not good enough given the complexity of the tax laws.

If you have a simple return, one of these volunteer programs -- or an online or software package -- can be a great option. They're cheap (or free), easy to use and usually allow you to get a quick refund. But we believe you will normally benefit from consulting a professional -- like us.

Using a professional is also a quasi-insurance policy. If one of your returns is examined and the IRS increases the amount of tax you are required to pay, you may be able to get out of paying underpayment penalties if you can show you reasonably relied on the advice of a qualified professional. In addition, when a paid preparer signs your return, he or she may be liable for penalties. Volunteers and other non-paid preparers are not subject to these same rules.

If you have any questions on this article, or need advice related to your tax situation, you can always contact us and we'll be happy to help you.