A new “mystery shopper” report from the Center for Taxpayer Rights (CTR) reveals widespread incompetence and misconduct among non-credentialed tax preparers, including return errors related to filing status, tax credits, and business income. The March 16 report prompted renewed calls to pass legislation granting the IRS authority to regulate the industry.
Preparer Oversight Constraints
“About 56% of the over 684,000 preparers registered with the IRS at the beginning of Calendar Year 2026 were non-credentialed,” according to the CTR. These preparers are not attorneys, CPAs, enrolled agents, or participants in the IRS’ voluntary Annual Filing Season Program (AFSP), the CTR explains, and are largely unregulated at the federal level.
This lack of oversight stems from Loving v. IRS (113 AFTR 2d 2014-867), a 2014 decision holding that the IRS lacks statutory authority to mandate competency testing and continuing education for preparers.
“Non-credentialed and ghost preparers have a significant compliance impact on low-income taxpayers,” according to the CTR. The group cites IRS data showing returns from non-credentialed preparers accounted for over 92% of the dollar adjustments in Earned Income Tax Credit (EITC) audits for tax year 2020.
Report Finds High Error Rates, Urges Federal Oversight
For its recent report, the CTR conducted 53 mystery shopping visits to non-credentialed preparers – testing three scenarios in six states – with test returns consistently being incorrect. Testers obtained returns in 25 visits; preparers refused to prepare a return in other instances, typically where the tester lacked a Social Security card for a claimed child.
In a scenario involving unmarried parents each claiming one child in a household, nine of 11 prepared returns (82%) were incorrect. In a test involving a sole proprietor with cash income, all eight prepared returns were incorrect, with preparers fabricating deductions, omitting cash income, and improperly claiming home office expenses.
Only 21 out of the 25 returns included the preparer’s preparer tax identification number (PTIN). And just 15 preparers provided testers with Form 8867, Due Diligence Checklist.
Based on these findings, the CTR made several recommendations focused on federal oversight. Among the recommendations is for Congress to authorize the IRS to establish a program to register and require minimum competency for all federal income tax return preparers.
The group also highlighted the IRS’ low penalty collection rate, noting that through January 2025, the agency had collected only 18.85% of penalties assessed against non-credentialed preparers for tax years 2018 through 2021. It recommended the agency prioritize the collection of the civil preparer penalties it assesses and regularly publish data on assessment and collection of these penalties.
Renewed Push to Expand IRS Authority Over Preparers
The report has added urgency to calls for congressional action. Senate Finance Committee Chair Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR) recently introduced bipartisan legislation, the Taxpayer Assistance and Service Act, S. 3931, that would establish minimum requirements for preparers. The bill also would ramp up penalties for preparer misconduct – such as failing to provide a valid PTIN or misappropriating client refunds – and create new criminal penalties for willful failures.
In addition, the TAS Act would give the IRS the power to deny, suspend, or revoke a PTIN for incompetence, disreputable conduct, or other failures. And it would require the IRS to publicly disclose final determinations where a preparer’s PTIN is suspended or revoked.
“This report is proof that Congress needs to pass the bipartisan Taxpayer Assistance and Service Act to protect Americans with minimum standards for the paid preparers who fill out their tax returns,” said Wyden. “Congress has been waiting around for too long while crooked and incompetent tax preparers have been screwing up people’s taxes or outright stealing their money.”
For more on preparation of returns by preparers, see Checkpoint’s Federal Tax Coordinator 2d ¶ S-1100.
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