Tax Prep Companies’ Business Model Exploits Low-Income Payers
The average parent in low-income communities is being bombarded with advertising designed to trick them into wasting their hard-earned money that could otherwise be going to groceries, gas, and other necessities.
How far could an extra nine hours and $150 go for you and your family? That’s how much Intuit’s TurboTax and H&R Block are taking from their average customer in low-income neighborhoods. Many of these customers don’t know that they can access these services for free—and that’s intentional. The average parent in low-income communities is being bombarded with advertising designed to trick them into wasting their hard-earned money that could otherwise be going to groceries, gas, and other necessities.
With Tax Day just passed, corporate tax prep giants are trying to extract every last dollar they can from Black communities and working-class taxpayers. A new report in partnership with Better IRS, titled Preying Preparers: How Storefront Tax Preparation Companies Target Low-Income Black and Brown Communities sounds the alarm on how exploiting low-income taxpayers is core to the business model of tax prep companies.
As it stands, 70% of taxpayers are eligible to file their taxes for free, but less than 3% have actually used the failed, corporate-backed free file service. The overwhelming majority of qualifying taxpayers are being coerced by unscrupulous corporate practices like deceptive advertising, overcharging, or hiding the free options.
Now that the IRS has made Direct File a free option, we call on the agency to expand the program.
Tax prep companies rely on and take advantage of economically disadvantaged communities. In fact, areas with the most people claiming the Earned Income Tax Credit have 75% more tax preparers for each person filing taxes compared to areas with fewer people claiming the credit. Furthermore, these major companies primarily hire what are called “unenrolled” tax preparers who lack expertise, certification, or credentials in tax rules and policy. Tax prep companies bank on their proximity, non-stop advertisement, celebrity endorsements, sweepstakes, and giveaways to legitimize their illegitimacy.
Unsurprisingly, companies like H&R Block have dismissed our report by noting the prolific number of locations, the years of experience of their preparers, and their 100% accuracy guarantee. They believe that because there are 9,000 locations across 50 states and most Americans live within five miles of one of their stores, then surely they must be helping hardworking families.
What this actually confirms is that H&R Block preys on low-income communities and communities of color by saturating the neighborhoods of targeted EITC-eligible taxpayers. Additionally, admitting unqualified preparers have been filing taxes for an average of 10 years or more is cause for concern. The predatory locations and disproportionate filing of EITC-eligible tax returns can both explain why Black taxpayers are audited at higher rates than their counterparts and why many people fail to take the deduction even though they are eligible. In this instance, correlation is causation.
These companies claim they are operating within the rules of the game—of which there are none. In 2010, the IRS tried to regulate the practice citing “an abysmal failure rate among unenrolled preparers” and pointing out that 1 in 4 of the 84,000 unenrolled preparers who took the competency exam failed, and more than 320,000 others never took it. That’s why we’re asking for accountability and for regulation of these tax preparers.
The introduction of the IRS Direct File pilot program represents a significant opportunity to dismantle economic inequality in our tax system. Direct File provides a much-needed alternative to costly tax preparation services in 12 states. This service is simple, free, readily available online, and a step in the right direction that empowers working-class people with an option to keep money in their pockets.
In the fight against corporate greed, we stand firm in our resolve. It’s time to hold these giants accountable, to empower the working class, and to build a fairer, more just system for all. Recent enforcement actions by the Federal Trade Commission are an important step; the public should know if they were overcharged and by how much.
With overwhelming public support for IRS modernization, including competency exams to ensure accountability and professionalism, the time for change is now. Now that the IRS has made Direct File a free option, we call on the agency to expand the program. The pursuit of an economy that works for everyone is ongoing. It starts with holding corporations accountable for their exploitative practices, advocating for policy solutions that prioritize the needs of working-class individuals, and ensuring equal access to resources and opportunities for all tax-payers.
