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Tax scams in low-income neighborhoods: Keep an eye on preparers

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Like weeds sprouting after a spring rain, April brings a sudden crop of shady tax-preparation joints to Boston’s low-income neighborhoods. Massachusetts, like most states, places no restrictions on who can hang out a shingle as a tax preparer. It’s an invitation for scammers to prey on unsuspecting taxpayers. The most the state Department of Revenue can do is publish helpful tips on how to avoid unscrupulous preparers.

Such outfits tend to focus on low-income neighborhoods because many residents qualify for the earned income tax credit, which can boost their refunds by thousands of dollars. Federal earned income tax credits — which amounted to $63 billion in 2012 — are a vital tool for lifting the incomes of the working poor. Yet much of that money never ends up in the pockets of workers, and instead gets siphoned off by preparers who tack on exorbitant fees. According to an IRS report, about 60 percent of taxpayers who claimed the credit used a tax preparer. And more than three-quarters of those preparers were not “enrolled” by the IRS, an optional process that involves completing a training and licensing program. As The New York Times reported recently, erroneous or sloppy returns from those unenrolled preparers are rampant, potentially leaving their customers on the hook for penalties.

Cracking down on tax preparers may lack some of the crusading satisfaction of raising the minimum wage, but it would have the same practical impact of getting more money into the pockets of the poor. Congress could easily fix the problem by allowing the IRS to mandate enrollment for preparers, which would impose suitability requirements on the industry. But with Washington in the grips of a doctrinaire anti-regulatory mood, action is unlikely. That leaves it up to states to license tax preparers, as several already do. Until the federal government acts, Massachusetts should empower regulators to set licensing standards for tax preparers.

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