Mystery Shoppers Expose a Bigger Problem in Tax Preparation

You know that moment when a client walks in, drops a shoebox of receipts, and says, “Don’t worry, my last guy handled everything”? Yeah, that sentence is doing a lot of heavy lifting these days. Because if recent findings are even halfway accurate, a good chunk of those “last guys” may not have known what they were doing. Let’s talk about it.

Are tax preparers winging it more than we thought?

Here’s the uncomfortable truth: a growing body of evidence suggests that many paid tax preparers, especially non-credentialed ones, are getting fundamental things wrong. A 2025 mystery shopping study by the Center for Taxpayer Rights tested 53 preparers across six states. The results were rough. Across scenarios involving filing status, child-related credits, and small business income, errors weren’t occasional; they were consistent.

We’re not talking about edge-case interpretations. Preparers missed basics:

• Misclassifying filing status
• Incorrect Earned Income Tax Credit and Child Tax Credit claims
• Failing to report cash income
• Inflating home office and business deductions

In one scenario involving a simple household setup, every single return prepared had errors tied to dependency rules and refund calculations. That’s not a bad day at the office. That’s a pattern. And this isn’t new. Earlier studies, including work by the GAO and the National Consumer Law Center, found similar issues. In one test set, only 2 out of 29 returns were prepared correctly. At some point, you stop calling this noise and start calling it systemic.

Wait, no minimum standards? Seriously?

Here’s where things get a little wild.

More than half of paid tax preparers registered with the IRS, roughly 56% of 684,000 preparers, are not CPAs, attorneys, or Enrolled Agents. Many don’t participate in the IRS Annual Filing Season Program either. Translation: a large share of people preparing returns for a fee have no mandatory competency requirement. All they need is a Preparer Tax Identification Number, which is not exactly a high bar. Now layer in “ghost preparers,” those who don’t even sign returns, and the visibility problem gets worse. If something goes sideways, tracking responsibility becomes a mess. Even more concerning, the IRS does not systematically track misconduct complaints submitted through Form 14517-A. So we don’t fully know how big the problem is. That’s like running an audit practice and not logging exceptions. You already know how that ends.

So, Congress finally stepped in, or was it just talking shop?

There’s movement, and for once, it’s bipartisan.

The Taxpayer Assistance and Service Act, introduced by Senators Mike Crapo and Ron Wyden, aims to tighten oversight on paid preparers while also modernizing IRS operations.

Key provisions include:

• Authority for the IRS to deny or revoke PTINs
• Penalties for altering returns or misusing refunds
• Stronger standards tied to preparer conduct
• Expanded digital tools and taxpayer access

There’s also support from groups like the National Association of Tax Professionals, which is pushing for continuing education requirements tied to PTIN eligibility. That last piece matters. Tax law isn’t static. If you’re preparing returns without staying current, you’re basically guessing with confidence. Still, not everyone’s on board. Critics argue that more regulation could squeeze out smaller preparers, especially independent operators. Fair point. But here’s the flip side: if the baseline quality is this inconsistent, doing nothing isn’t exactly a great option either.

Who pays the price when returns go wrong?

When a preparer messes up, the taxpayer owns the problem. Penalties, audits, and delayed refunds all land on the client. And in many cases, the client doesn’t even realize there’s an issue until months or years later. There are also more subtle hits:

• Overstated refunds that trigger future audits
• Missed credits that quietly cost taxpayers money
• High, opaque fees with add-ons like refund anticipation products

In one reported case, preparers advised clients not to report side income if there was no W-2. That’s not a gray area; that’s just wrong. Think about a typical small business client, say, a solo consultant running a Schedule C alongside W-2 income. If their preparer overstates deductions or skips cash income, that return becomes a ticking clock. And when the IRS eventually looks, guess who’s explaining it? Not the preparer.

What does this mean for firms and professionals right now?

This isn’t just a consumer protection story. It hits closer to home for CPA firms and finance teams.

• First, expect increased scrutiny: If preparer standards tighten, enforcement will likely follow. That means more attention on due diligence, documentation, and consistency, especially around refundable credits and small business reporting.
• Second, client cleanup work is going to grow: Firms are already seeing it. New clients coming in with prior-year returns that need fixing, sometimes across multiple years. It’s messy, time-consuming, and not exactly the work anyone gets excited about. But it’s becoming part of the job.
• Third, there’s a positioning opportunity: Credentialed professionals, CPAs, EAs, and attorneys, finally have a clearer way to differentiate. Not through marketing fluff, but through something simple: competence and accountability.

If regulation formalizes minimum standards, that gap becomes more visible. And honestly, that’s long overdue.

Takeaway

The U.S. tax system is complex enough that millions of taxpayers rely on paid help every year. That’s not changing anytime soon. But the idea that someone can charge for tax preparation without demonstrating basic competency? That’s starting to look like a design flaw, not a feature. The recent reports didn’t uncover a few bad apples. They pointed to a broader issue: inconsistent quality in a system that depends heavily on trust. The proposed legislation could move things in the right direction. More oversight, better standards, clearer accountability. But until those changes actually land, the reality is this: Not all preparers are created equal, and the gap between “filed” and “filed correctly” is wider than many clients think. So next time someone says, “My guy handled it,” you might want to ask a follow-up. Because right now, that answer doesn’t mean as much as it should.