Mystery shopping exposes errors by non-credentialed preparers

A new report from the Center for Taxpayer Rights details a myriad of errors made by non-credentialed preparers during mystery shopping visits. 

The report tested mostly small, independent preparers across six diverse geographic regions, using three scenarios focused on filing status, dependency rules and sole proprietorship income. The results were concerning. Refunds were misstated, filing statuses were wrong, dependency rules were misunderstood and Schedule C income was mishandled.

While the implications are far-reaching, ethical small-firm preparers can take away two key ideas:

• First, sloppy preparation by others affects the whole market. 
• Second, following tax law, return accuracy, documentation and client education are not just compliance habits. They are part of your value as a tax professional.

Mystery shopping report results

The report focused on and found mistakes in core return preparation.

In one scenario involving unmarried parents living together, nine of 11 prepared returns requested the wrong refund amount. The same number was incorrectly used for head-of-household status. Some also claimed the wrong number of qualifying children, setting up duplicate-claim problems.

In another scenario, every prepared return had the key dependency issue wrong. Preparers failed to identify qualifying relatives and one even used married filing jointly after the tester repeatedly referred to the other adult as her boyfriend.

The Schedule C results were the most troubling. Every prepared return reported less income than the correct amount. Some omitted cash income. Others overstated or invented deductions, including home office amounts, mileage and even wages. Refunds swung wildly based on who prepared the return.

Not every return copy included a PTIN and not every return that should have included Form 8867, Paid Preparer’s Due Diligence Checklist, actually did.

How fees and quality don’t always align

The testers completed 53 shopping visits, mostly with small independent preparers and only one visit involved a chain site. Fees also varied widely, from $60 to $800.

That wide range matters. A lower fee did not signal better quality. Nor did a higher fee.

The survey portion of the report also helps explain why bad preparation travels so far. Taxpayers often find preparers through word of mouth and many use a preparer because they are not comfortable preparing the return themselves. That means one careless preparer can distort client expectations, making it harder for careful local firms to show their value.

How small-firm preparers can respond

This report is best used as a tool for clarifying processes and expectations. 

Small firms can use it to reinforce that a strong process is part of good client service. The extra intake questions matter. So do follow-up questions about who paid household costs and requests for documentation on cash income and business expenses.

This report also supports a message many practitioners already have to deliver every season: the goal is not to manufacture the biggest refund. The goal is to prepare the correct return.

Professional application for small-firm preparers

When a client says, “My old preparer never asked all these questions,” CTR’s report gives you a clean response. You can explain that the questions are there to protect the client and support an accurate return.

When a client hesitates to provide records for cash income or business expenses, this report gives you a real-world reason why documentation matters. The biggest problems in the testing showed up where income and deductions were the easiest to manipulate.

When a client pressures you to “just put something in,” these findings help remind you to hold the line. It shows exactly what happens when preparers cut corners.

And when a client compares your fee to someone else's cheaper fee, this report helps reframe the conversation. Low-cost and quick solutions can end up costing much more in the long run.