National tax preparation chains are disproportionately clustered in low-income neighborhoods, where they charge high fees and make frequent errors, according to a Johns Hopkins University study released Thursday.
The researchers found that low-income workers in Baltimore and Washington eligible for the Earned Income Tax Credit spent an average of $400 at national tax preparation outlets — or 13 percent to 22 percent of their total refund. In Baltimore, where the average refund was $2,335, taxpayers were charged $309 at H&R Block and $509 at Liberty Tax Service.
"They're being overcharged for something that honestly shouldn't cost that much," said Paul Weinstein, the study's co-author and director of Johns Hopkins University's Graduate Program in Public Management. "It's clear that this is a target for these entities."
In a statement, H&R Block, which was named in the report, challenged the study's methodology and findings. The company said the study was "not worth the paper it was written on," "highly-biased" and contained falsehoods.
"There's simply no other tax company doing more to help low-income families than H&R Block. We are experts on [the Earned Income Tax Credit] and know how to help qualifying clients," the company said in the statement. "We work hard to get our clients their maximum refund and, importantly, we stand behind our work by guaranteeing its accuracy."
The company also said its 10,400 U.S. offices are located in "all kinds of communities. We have an office within five miles of 95 percent of Americans — covering all demographics and income levels."
A representative from Liberty Tax Service, which was also named in the report, could not be reached for comment.
Liberty Tax has seen dozens of its franchise locations in Maryland suspended by the comptroller's office in recent months for submitting a high volume of allegedly fraudulent filings. The company has cooperated with the investigation.
ZIP codes with the highest number of Earned Income Tax Credit filers had 75 percent more tax preparation chains, the study also found, with "a clear relationship between the share of EITC filers in a zip code and the area's preparer saturation."
The returns filed by those preparers also may be filled with errors, the study concluded, citing two studies by the Government Accountability Office that found error rates of 89 percent and 94 percent, respectively.
"Congress did not intend that tax credits be used to pad the bottom line of private tax service vendors," the authors wrote.
The study, to be published by the Progressive Policy Institute, was co-authored by Bethany Patten, a policy and research manager at Excellent Schools Detroit. It follows up on a 2002 study by the Brookings Institution and the Progressive Policy Institute that found tax preparation cost workers an estimated $1.75 billion in EITC refunds.
Many such filers are eligible for free tax-preparation services offered by local nonprofits, including the Baltimore CASH Campaign, though such organizations are frequently overstretched.
Weinstein said people in low-income neighborhoods are relentlessly targeted with advertising from these tax preparation chains.
"A lot of these individuals are living day to day," he said, facing "the desire to get any kind of benefit they can get."