Are you aware of H&R Block's "Peace of Mind" guarantee?
Dear Reader,
Yes, I am aware of H&R Block's Peace of Mind guarantee.
Under their basic guarantee, H&R Block will pay your IRS penalties and interest if a mistake was due to their error in preparing your return. You owe any additional taxes the IRS may assess. Under their Peace of Mind guarantee, H&R Block will also pay up to $5,000 of additional taxes, plus penalties and interest, if the IRS changes your tax return due to an error in preparing your tax return.
Jackson Hewitt offers a similar guarantee, they call it a Gold Guarantee.
These products seem to be tailored made for people who are scared of the IRS. These products feed on the fear that "you may be audited" or that "something may be wrong" with your tax return. In reality, these products really protect the company more than they protect you. With these guarantees, the company has a pool of funds to pay out claims arising from tax preparation mistakes. And since both companies hire many inexperienced tax preparers, you can be sure they want to minimize the damage caused by simple tax prep errors. Even if the company pays out $1 in claims for every $1 they collect in fees, the company has still shielded its profits from erosion due to the errors of their tax preparers.
I had one client last year who bought one of these guarantees. Turned out, there was a mistake on his tax return, and the company never honored his claim. Sad story, because he paid for protection that he never received. Moreover, the mistake was one that was easily corrected by filing a revised tax return (called an "amended return"). The client not only had to pay the IRS additional taxes, penalties, and interest, but also had to pay me to prepare a corrected version of his return. How much better for the client if the original tax preparer offered to revise his tax return for free, or to talk to the IRS about the matter.
Bottom line, while these products may be a good deal for some people with complex tax returns, and they are unsure if the return was prepared correctly, these guarantee products are almost never a good buy for people with simple tax returns. A reputable tax preparer will be willing to go to bat for you with the IRS, even standing by your side at an audit to explain how the return was prepared. The best defense, they say, is a great offense. Getting your tax return prepared accurately, with plenty of documentation and good recordkeeping, and documenting tax decisions that were made on how to handle this or that, is the best way to prove to the IRS that you were serious, thoughtful, and thorough in preparing your return. At the end of the day, such documentation provides more peace of mind than any extended guarantee.
