Mayor Rahm Emanuel today announced the results of a citywide investigation on tax preparation services to protect residents as they receive help preparing their taxes. This is the second year that the Department of Business Affairs and Consumer Protection (BACP) conducted such an investigation. This year, the investigation found that 58 percent of tax preparation businesses visited by City inspectors were not in compliance with the City ordinance regulating tax preparation services. This is a 33 percent improvement from the 91 percent that were not in compliance last year, these investigations will continue as the administration continues to protect consumers from predatory practices.
"Tax season is here and in Chicago, we are sending a clear message that commercial tax preparers must be honest and upfront with consumers about their choices and rights," said Mayor Emanuel. "We have invested more resources in providing free tax preparation; specifically assisting those who qualify for the Earned Income Tax Credit, putting money back in the pockets of Chicago residents to help sustain our small businesses, strengthen our neighborhoods and infuse millions of dollars into our local economy."
During the investigation targeting predatory tax preparers, BACP investigated 419 known tax preparers and found that 58 percent of the businesses visited by City inspectors were not in compliance with the City ordinance regulating tax preparation services. As a result, twelve businesses received a cease and desist orders; 28 received notices to correct their (limited business license) licensing; and 436 received Administrative Notices of Violations (ANOV's) and will have to appear at administrative hearings. The cited violations include operating without a license, failure to provide a consumer bill of rights, operating illegally or without state of Illinois approval; and failure to provide written disclosure. Fines for each violation can range from $200.00 to $10,000 per offense. There is the potential for $134,350 to $510,000 in fines based on 245 ANOVs issued.
"We are requiring every tax preparer to provide consumers with a bill of rights, so customers know exactly what to expect and how to seek help if they believe they are victims of unscrupulous tax services," said BACP Commissioner Maria Guerra Lapacek. "By inspecting these locations for a second time, we want to dramatically expand consumer awareness about commonly offered predatory tax products."
In order for tax preparation service providers to operate in the City, the City mandates that tax preparers inform taxpayers of their rights and disclose any hidden fees, eliminate surprise costs and hard to find fine print during tax preparation. BACP requires require businesses to use easy-to-understand disclosure forms that clearly lay out all costs before the return is prepared.
A tax preparer cannot force customers to use a Refund Anticipation Loan or a Refund Anticipation Check (RALs/RACs) if they seek general tax returns services. Some predatory commercial tax preparers have been found to use misleading practices and fine print to drive families into costly and unnecessary refund products like Refund Anticipation Loans and Refund Anticipation Checks without full disclosure.
The businesses being targeted under the ordinance also prey on taxpayers eligible for the Earned-Income Tax Credit (EITC), a critical economic support that allows hardworking low-income families to keep more of what they earn. Each year, approximately 100,000 eligible households in the City do not claim the EITC, leaving as much as $200 million in unclaimed dollars that could help individuals provide for themselves and their families.
In the coming year, the City's free Tax Preparation Assistance Program will assist 23,000 qualifying families in applying for the EITC, helping them receive more than $45 million in refunds and save $4.5 million in tax preparation fees – a 25 percent increase over 2013 when the program helped 18,078 working families receive more than $36 million in refunds. The average EITC recipient receives a refund of $2,200.
With the availability of free tax preparation services across Chicago, and consumer protections through the City of Chicago Taxpayer Protection Ordinance, city residents can rest assured of getting high quality tax preparation assistance. The city offers free, confidential tax preparation assistance by trained, qualified volunteers at 20 sites from now until April 15, 2014. Residents can learn more at: www.taxprepchicago.org.
If a consumer feels there rights were violated, they should file a formal complaint with the City of Chicago, Department of Business Affairs and Consumer protection by calling 3-1-1 or 312.744.5500. For more information on EITC, call 311 or visit the website at www.taxprepchicago.org to find the location nearest you.