Kansas City, MO,
13
April
2016

H&R Block Details Inaccuracies in Biased EITC Study

This “report” from the Progressive Policy Institute is not worth the paper it was written on. It is a highly-biased work co-authored by Paul Weinstein, who, by the way, presented as a speaker at an Intuit-sponsored forum in January 2015. Intuit is the maker of TurboTax. With that said, and taking into consideration the numerous examples of misleading or outdated information contained in this report, as well as the lack of transparency regarding its funding, we strongly recommend that media, policy makers and the public disregard it entirely given its lack of credibility.

To begin, the research and methodology is extremely poor. Significant findings in the “study” are based on “an informal survey” of major tax preparers over six days in two cities. There was no comparative assessment of how taxpayers are or aren’t served by the DIY software providers (of which H&R Block is the second largest provider). There also was no mention of the error rate for individuals filing their own EITC returns. 

The report is particularly egregious in that it casts doubt on our efforts to prevent the enormous levels of fraud and improper payments associated with the EITC. H&R Block simply made the common sense suggestion – and obtained concurrence – that the eligibility questions should be the same for all taxpayers, regardless of the methodology they use to file. H&R Block’s efforts are about preventing the $14-$17 billion in annual fraud and improper payments so that the EITC program is protected for taxpayers who are the intended beneficiaries – and nothing more. Anyone who argues H&R Block’s motives are different is not really committed to fixing a gaping hole in EITC eligibility (or to reducing the billions of dollars in improper EITC payments) that will continue until unequal filing standards are addressed. All taxpayers, and especially the intended beneficiaries of the EITC program, deserve equal treatment.

But perhaps the most offensive aspect of this report is the absolutely unfounded suggestion that H&R Block is in any way preying on the poor. There’s simply no other tax company doing more to help low income families than H&R Block. We are experts on EITC and know how to help qualifying clients. We work hard to get our clients their maximum refunds and, importantly, we stand behind our work by guaranteeing its accuracy. In addition, H&R Block is one of the largest Free File Alliance (FFA) providers, filing one out of 4 FFA returns – that’s free tax support for those making under $62,000 a year. Further, we get 85 percent of our clients – from all demographics and income levels – a refund with the average amount of $3,000.

It’s also an absolute falsehood to suggest we try to take advantage of lower income Americans by locating our offices in their neighborhoods. The fact is H&R Block’s 10,400 offices in the United States are located in all kinds of communities. In fact, we have an office within five miles of 95 percent of Americans – covering all demographics and income levels – and we are pleased to represent each and every one of our clients. H&R Block has a proud 62-year history of serving clients. We have prepared over 680 million tax returns since 1955. We have 80,000 tax pros – a virtual army – working every day to serve taxpayers with the quality they deserve and have come to expect.

H&R Block Response to

Progressive Policy Institute Report: The Price of Paying Taxes II

This report is a competitive attack hidden behind the guise of academic research that is a disservice to the credible discussion underway on how best to serve and support taxpayers, including those who qualify for refundable credits.

Significant findings and conclusions in this “study” are based on “an informal survey” over six days in two cities of major tax preparer chains; no assessment of how taxpayers are or are not served by the DIY software providers; no mention of the error rate for individuals filing their own Earned Income Tax Credit (EITC) returns; and no transparency on who funded the study. There is liberal reference to the Brookings Institution in an apparent attempt to garner the benefit of their credibility from the study done in 2002 though they do not appear to be a part of this updated “informal survey”.

The reader of this study will find it hard to not recall the phrase that there are “lies, damned lies and statistics” suggesting that the arguments advanced are so weak that they gain strength even from flimsy research and data.

The Report

Conclusions:

  • Paid preparers charge for their services, including for EITC returns. Yes they do. At H&R Block, taxpayers benefit from our deep expertise about EITC as well as other important issues including compliance with the Affordable Care Act (ACA), other refundable credits, and options for saving at tax time. Plus, we stand behind our work. 

  • National tax preparer chains target EITC filers by zip code location for their offices. At H&R Block our 10,400 offices in the United States are located in all kinds of communities. We have an office within five miles of 95 percent of Americans – covering all demographics and income levels. The report provides no correlative data on population density and zip codes that might provide additional reasons for why offices are more prevalent in urban zip codes, e.g., there are more people.

  • Government and other studies show a high error rate on EITC returns by paid preparers. The GAO reports cited were not statistically valid. Also, the report fails to cite the IRS study in which error rates for nationally branded preparers were lower than all others - including self-prepared returns. See chart on page 26 of this report.

Specific sections of the report

Page 2: The study calls out the need for a national goal to reduce the dependence of low wage-workers on paid tax preparers, including simplifying EITC rules and requirements.

  • H&R Block supports efforts to reform the tax code and the tax return filing process, particularly the complex requirements for qualification for the EITC.
  • The larger issue, however, is to understand that the tax code is complex because of all the social programs administered through it – such as the EITC, child care, retirement, and most recently, healthcare with the Affordable Care Act – all designed to assist predominantly low- to middle-income earners.
  • As the largest preparer of EITC returns, no one knows the challenges EITC taxpayers face better than we do. That is why we support our advocacy with research - we have issued two papers on the real-world impact of the conflicting definitions of a child: Navigating the Maze of Dependent-Related Tax Benefits and The Earned Income Tax Credit: Illustrations of Complexity.

Page 3: Study references paid preparer error rates on EITC.

  • The study fails to note that the IRS’s own study reports that the error rate on self-prepared returns is higher than that of those prepared by national firms. See the chart on page 26 of this report.

Page 3: References Bill Cobb letter to IRS and wrongly alleges it is a request to make EITC forms more complicated.

  • The study fails to address the fact that the changes referenced in the Cobb letter were changes recommended by a working group comprised of IRS staff and key industry members, including Intuit, the maker of TurboTax. This working group has been active since 2008 and their reports and recommendations are available here. Participant companies and representatives are listed beginning with the 2010 report.
  • More significant is the fact Mr. Cobb’s letter raised the issue of inequality among EITC taxpayers – that the eligibility requirements for the credit were being applied differently depending upon the method by which the return was filed. This disparity was clear to H&R Block as we have both paid preparer and self-prepared returns – one of the few companies who see both types of returns and any trends in filing patterns. The eligibility inequality was not intended when the credit was enacted.

Page 4: “Storefront preparers are locating where their customers are. But stiff fees charged by large chain EROs can quickly erode an EITC refund.”

  • At H&R Block, the customer is the driving force behind our business. We invented the category of tax preparation and have six decades of experience understanding tax filers and their needs. We constantly refine and deepen this knowledge base.
  • Our understanding of the taxpayer is deeper and better than anyone else. And we use this understanding to serve taxpayers how they want to be served.
  • Our research shows that there are three segments of taxpayers: those whose needs are about the refund that is likely their biggest financial transaction of the year and who want to maximize that refund each and every year; those who want year-round service and believe their tax situation is complex and thus, seek assistance; and those who believe they're capable of preparing their own return, so they want a DIY method.
  • At H&R Block, all of our taxpayers benefit from our deep expertise about EITC as well as other important issues including compliance with the ACA, other refundable credits, and options for saving at tax time. Plus, we stand behind our work.

Page 4: “Congress did not intend that tax credits be used to pad the bottom line of private tax service vendors.”

  • If by “pad the bottom line” the study’s author suggests that paid preparers provide no value to their clients, we disagree – and so do our clients. In addition to ensuring our clients receive the refund they are entitled to, we provide information on other important matters including compliance with the ACA, other refundable credits, and options for saving at tax time – what may be the largest financial transaction of their year.
  • Had the authors looked more closely at how Congress did intend to help taxpayers file more easily they would have cited the Congressional mandate that the IRS develop a return-free filing system – a program consistently lobbied against by the largest DIY provider.
  • In contrast, H&R Block has worked to promote a thoughtful discussion on the mandate. In our testimony at the December 2011 Internal Revenue Service hearing on the Real-Time Tax Initiative, we raised thoughtful questions about the impact to taxpayers which have yet to be answered. 

Page 8: References that EITC taxpayers choose paid prep because of complexity.

  • Our research shows that there are three segments of taxpayers: those whose needs are about the refund that is likely their biggest financial transaction of the year and who want to maximize that refund each and every year; those who want year-round service and believe their tax situation is complex and thus, seek assistance; and those who believe they're capable of preparing their own return, so they want a DIY method.
  • At H&R Block, all of our taxpayers benefit from our deep expertise about EITC as well as other important issues including compliance with the ACA, other refundable credits, and options for saving at tax time. Plus, we stand behind our work.

Pages 8-9: References to paid preparer studies.

  • These studies cover all returns, not just EITC.
  • The GAO does not look at independent preparers who do the bulk of returns and when it studies large nationally branded preparers, it does not utilize statistically valid samples.
  • To date, there are no studies on the error rates on self-prepared returns other than the IRS study of EITC returns cited above.

Page 9: “Government officials should not assent to industry calls to further complicate the EITC.”

  • We agree. That is why we advocated for equal application of the eligibility requirements regardless of filing method – a position developed and supported by the industry with the IRS and now being implemented.
  • H&R Block’s elevation of the issues discussed by the IRS Software Developer’s EITC Working Group has resulted in reduced burden for those taxpayers who use a paid preparer. While the Treasury Department and the IRS chose to implement a different methodology than making changes to tax forms, they ultimately agreed to remove questions that were burdensome and intrusive and only applied to taxpayers who used a paid preparer. They also instituted a pilot this season to test questions that would be added to self-prepared software to ensure full understanding of the eligibility for this complex credit.

Page 9: Authorize the IRS to require competency exams.

  • HRB has long supported minimum competency standards for return preparers – and not just examinations but continuing education and background checks. However, we also feel strongly that DIY software should be subject to standards to ensure tax compliance and to prevent taxpayers from shopping around for the answer they want.

Page 10: States that MyFreeTaxes.com is unregulated and does meet requirements built into the Free File Alliance.

  • The security measures are the same for all our online products – and H&R Block leads the industry in setting those standards. We have partnered with the United Way for many years to provide access to free online software through MyFreeTaxes.com. The implication that this software does not contain the same consumer protections as our online offering that is part of the Free File Alliance is patently absurd.
  • And just like with the Free File Alliance product, we do not solicit users of the software nor do we promote any additional products or services. In fact, unlike FFA, MyFreeTaxes.com does not have an age requirement – only income – so more taxpayers are eligible to use MyFreeTaxes.com than the Free File Alliance.
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