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How Some Tax Preparers Prey On The Poor

How Some Tax Preparers Prey On The Poor

Everyone’s least favorite day of the calendar year is upon us. Hopefully you’ve already filed, signed, sealed and delivered your taxes, along with any money due (if you’re lucky, maybe you got money back!), but if you haven’t, this is it. Go time.

Tax day.

For the working poor, tax day is supposed to actually represent a chance at equality: thanks to programs like the Earned Income Tax Credit, along with a system that scales on the basis of income, tax credits and refunds provide opportunities for people by putting money back in their hands every April. Unfortunately, a predatory industry has moved in to take advantage of them, charging unreasonable fees for tax preparation and pocketing a large portion of the money that should be going to the fight against poverty in the United States. The New York Times just ran an expose looking at exploitative tax preparation services, and how they damage the working poor — Colorlines follows up with detailed analysis of the numerous programs in the United States that target the poor, particularly low-income people of color.

Here’s how it works: while anyone can prepare their own taxes, many people prefer to take their taxes to a professional, not least because accountants and tax preparers typically promise that they’ll help people maximize their money back. Ethical tax professionals charge a reasonable hourly rate for handling taxes, and some may offer flat fees or pro-bono work for low-income taxpayers who have very simple needs (such as those who don’t do withholding, and don’t have to factor in investment income and other types of income and assets).

At the same time, there’s a thriving market in services with very high preparation fees, designed to gouge low-income people. Popup tax preparation businesses appear in low-income communities as early as December, promising big refunds for low rates, but when customers actually go to use their services, what they encounter isn’t quite what was advertised. They may not be aware that high fees are suspicious, or that industry rates are much lower. If they are, it might not always be possible to find a tax preparer in their area who will help them, even with people like the volunteer seen above who travels in low-income communities during tax season to help out with tax preparation.

Consequently, they pay far too much for even basic taxes — sometimes hundreds of dollars for a tax preparation session that takes less than half an hour. Their fees may include a number of suspicious “filing fees” and “convenience fees” on top of fees for the services of the tax preparer, creating a hefty bill that the preparer happily takes right out of the tax refund. This is not how tax refunds are supposed to work, or how tax preparation is supposed to be done.

Taxpayers don’t realize that they have better options, and they’re surrounded, as Colorlines points out, by an abusive financial system that exploits low-income people in general. It includes for-profit colleges, payday lenders, exploitative car loans and more, all of which charge high interest and prey on vulnerable people with limited financial literacy. The IRS and Congress have made attempts to reform the tax preparation industry to create stricter standards and help consumers determine who’s a reliable and trustworthy tax preparer and who isn’t, but it’s an uphill battle thanks to industry lobbyists like H&R Block.

The system can be especially problematic for people of color, who are more likely to be low income, and can lack access to opportunities for financial education. Exploitative lending and tax preparation services tend to be especially common in low-income communities of color, especially those with a large immigrant population, where people may be unfamiliar with their rights under the law and uncomfortable with English, making it hard to advocate for themselves.

As yet another tax season draws to a close, it’s time to rethink the loose regulations on tax preparation, because low-income taxpayers clearly need our help.

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Photo credit: Charlie Kaijo.

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47 comments

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9:13AM PDT on Jul 12, 2014

They do a slip shod job too... Find a CPA!

9:02AM PDT on Apr 21, 2014

I'm so glad to see at least a few of the commenters have discovered The Fairtax. They've already got a bill ready for review and all it needs is wide exposure and I think insisting on A. Repeal of the income tax laws [because they've found that if you just switch to a sales tax without repealing income tax, the income tax will start to creep back up] and B. switch to sales tax. That would pretty much end tax fraud, predatory preparers as well as lagit ones, and the IRS as we know it.
And then start a garenteed annual income for all adults so nobody loses everything as the job market flucuates. Our mainstreet economy should not have to be run on loans that must be paid back, it must be given it's own money supply thru the safety net programs. Stabilize, then sustain. No room for waste or distruction of our shared Earth. Viewpoints like Jacob's are based on the present reality of us haveing to barrow money and pay it back and he thinks that we shouldn't be dependant on the government as if we have a choice.But the only choice we have is to. enmass, insist that our real economy is given the money supply, instead of the banks.They will only make their money by proving to be honest and trustworthy stewards of the money we give them to hold for us.

1:48PM PDT on Apr 20, 2014

Learn to do your own taxes....not difficult.

2:12AM PDT on Apr 20, 2014

Too bad to see welthy persons and/or corporations help only if they get tax reductions. But of course some help gets through because of this, but it is not "by the heart"......

6:21AM PDT on Apr 19, 2014

When the government and it's IRS "prey on the poor", what makes you think tax preparers would not?

I believe there are now more people dependent on the government for their survival than there are people who are gainfully employed and can support themselves.

And our socialist president and his minions are well pleased, because according to them, welfare "stimulates the economy".

What it also does is to perpetuate the cycle of poverty, thereby ensuring that people who rely on welfare will vote for those most willing to give it to them.

Until the entire country is "poor" - at which point, where will the welfare money come from?

The coffers will eventually dry up, no one will be prepared to loan us money any more, and then hopefully, we will have the reform that will restore this country to some form of sanity.

5:15PM PDT on Apr 18, 2014

thanks

5:14AM PDT on Apr 18, 2014

LOL Edward D.!

5:51PM PDT on Apr 17, 2014

Katie,Block is one of the biggest rip offs EVER

5:07PM PDT on Apr 17, 2014

It's the American way ... predatory industsry upon predatory industry, and growing daily. Learned from the masters of power and greed, everyone exploits when and where opportunity presents. How sad and sick we've become.

One on one, small community based groups etc. are all that's left ooperating out of love for others, not personal gain. God bless 'em.

5:35AM PDT on Apr 17, 2014

Sadly noted

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