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Beware of hidden fees for tax preparation

Tax preparers in the big chains may be cheating the federal government, reports NBC's Lea Thompson in our series 'Your Money, Your Taxes.'

More than 60 percent of Americans pay for tax preparation. Paid tax preparers do 78 million returns. Monday, NBC News showed you how some tax preparers at the nation's biggest chains have been cheating the government in order to get their clients bigger refunds. But NBC’s hidden camera investigation also found some of those same preparers are quick to sell clients questionable financial products they may not need.

The problems government investigators found with the nation's largest tax preparers were widespread, including high rates for instant refunds and fees you might not expect to pay.

“Frankly, I was amazed at the degree of incompetence and unprofessionalism,” says Sen. Max Baucus, D-Mont.

More than half of the tax preparers visited by the Government Accountability Office urged people to underreport side income. That is the key, the GAO says, behind those high fees.

NBC News found the same at two of three preparers we went to.

H&R block told our NBC News intern with a hidden camera: “I suggest don't report it because you're getting a refund. But get our ‘peace of mind guarantee.’”

A “peace of mind guarantee” is an “extended warranty” to cover any errors they make on your tax return. The extra fee costs $29.

And then there are those instant refund loans. The GAO found they're often targeted to low-income taxpayers. A tax preparer loans you your refund amount so you don't have to wait for the IRS.

One Jackson Hewitt preparer told NBC it would cost $205 to do our taxes, but we would get a $585 refund. If we wanted our money back fast, we could get an instant loan for additional fees — for a total cost of $298.

That means paying $93 dollars more to get an instant refund instead of waiting three weeks to get it from the IRS. That is the equivalent of a 276 percent annual interest rate loan. The GAO found loan rates even higher.

While the tax chains have been sued many times over these additional fees, they are legal.  In fact, last year more than a quarter of Jackson Hewitt's revenue came from instant loans.

Sens. Baucus and Charles Grassley, R-Iowa, want to make tax preparing chains more accountable to protect consumers and to put an end to the loss of billions of tax dollars.

“It's a very major problem,” Grassley says, “and they're just contributing to it and making it a bigger problem.”

H&R block says the tax preparer who told NBC we didn't need to pay taxes on side income violated its policies. As for its “peace of mind guarantee”, H&R Block says it's up to clients to choose whether it's right for them.

Jackson Hewitt did not respond on the high interest rate it charges for its instant loans.