Is A Tax Preparer Liable for Mistakes?
If your tax preparer makes a mistake resulting in you having to pay additional taxes, penalties or interest, you have to pay these fees — not your tax preparer. Since it is your tax returns, it’s your responsibility.
When you suspect the tax preparer of misconduct that results in an IRS audit and penalties, you can report them to the IRS for misconduct or sue for damages.
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NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
What Happens If A Tax Preparer Makes A Mistake?
The bad news is that even when the tax preparer makes mistakes, you must pay the penalties. If the mistake was caused by the omission of information from your end, you’re on the hook here and you’ll need to work with your tax preparer to make necessary corrections
However, if the mistake was caused by the tax preparer, you would need to notify him about the correspondence you’ve received from the IRS.
Ideally, the tax preparer should rectify the mistake by taking necessary corrective action, including filing an amended return at no extra charge, informing the IRS and compensating the taxpayer to smooth things over. But they aren’t required to do so. Check the contract you signed with the tax preparer that states their liabilities.
When there is suspected misconduct, take a different approach. You need to complete Form 14157 and submit it to the IRS with all supporting documents. If the error impacts your tax return or refund, you will need to file Form 14157-A.
According to the IRS, some instances in which you can report a tax preparer are:
- Not informing the client before filing an individual Form 1040
- Making changes in the tax return documents
- Generating a larger refund by using an incorrect filing status
- Generating a large refund by creating false exemptions or dependents
- Creating or omitting income
- Generating a large refund by creating false expenses, deductions or credits
- Misdirecting refunds
When the mistake doesn't impact tax returns and/or refunds, you may still report the tax preparer under the following circumstances.
- Improper use of the Preparer Tax Identification Number (PTIN) on a tax return
- Not providing clients with a copy of their tax return when asked to do so
- Failing to sign tax returns they prepare and file
- Holding the client's records until the preparation fee is paid
- Using off-the-shelf free tax software for preparing client returns
- Claiming to be a certified accountant, an attorney, an enrolled agent, enrolled retirement plan agent or enrolled actuary
If you are a tax preparer and you notice another tax return preparer committing any of the practices mentioned above, you can also report them.
It is up to you to convince IRS of the tax preparer’s negligence. You will need to show a direct relationship between the tax preparer’s mistake and the damages you suffered.
The IRS will investigate and if it finds evidence of wrongdoing, the tax preparer’s tax identification number could be rescinded.
In addition, you can report the tax preparer to the ethics committee of any professional organization that the tax preparer may belong to such as the Certified Public Accountants, NATP, American Bar Association.
Can I Sue A Tax Preparer?
Suing a tax preparer is often the last resort since the taxpayer would have to incur significant legal fees. However, if the amount in question is substantial, taking the matter to the court may provide relief from undue taxes and fees. Moreover, if the tax preparer is not registered by the IRS or state-licensed, the only recourse is legal action
You can file a standard professional malpractice complaint with the state court in your jurisdiction.
To avoid dealing with these problems, it is best to research the candidates and find one that suits your needs. For example, if you’re dealing with complex financial situations, you may need regular consultations. IRS has a website where you can find professionals with valid credentials who are up to the task.