[UNITED STATES] When you hire a professional tax preparer, you expect them to file your taxes accurately and on time. However, even the most experienced tax professionals can make mistakes. What happens when your tax preparer screws up the filing? Are you to blame? The answer might surprise you.
According to the IRS, taxpayers are ultimately responsible for the information on their tax returns, regardless of who prepares them. This means that even if your tax preparer makes an error, you could be held liable for any resulting penalties or additional taxes.
When it comes to tax filing errors, the IRS doesn't distinguish between mistakes made by the taxpayer and those made by a tax preparer. As far as the IRS is concerned, you signed the return, so you're responsible for its accuracy.
Larry Light, a contributor to Forbes, explains the situation succinctly: "Even if you hire a professional to do your taxes, you are still responsible for the accuracy of your return. The IRS holds you accountable for any errors, regardless of who prepared the return."
This reality can be frustrating for taxpayers who rely on professionals to navigate the complex world of tax law. However, it's essential to understand your rights and responsibilities when working with a tax preparer.
Common Tax Preparer Mistakes and Their Consequences
Tax preparers can make various errors that could lead to problems with your return. Some common mistakes include:
- Incorrect calculations
- Misreporting income or deductions
- Failing to claim available credits
- Missing filing deadlines
These errors can result in underpayment of taxes, overpayment of taxes, or even trigger an IRS audit. In some cases, you may face penalties and interest charges on top of any additional taxes owed2.
Steps to Take When You Discover a Tax Preparer Error
If you realize your tax preparer has made a mistake on your return, don't panic. Here are some steps you can take to address the issue:
Confirm the error: Make sure the mistake is indeed the preparer's fault and not due to incorrect information you provided.
Contact your tax preparer: Inform them of the error and ask them to take corrective action.
File an amended return: If necessary, file Form 1040-X to correct any errors on your original return.
Communicate with the IRS: If you've received a notice from the IRS, respond promptly and provide any requested information.
Consider seeking compensation: If the error resulted in financial losses, you might be able to seek compensation from your tax preparer.
Reporting Tax Preparer Misconduct
In cases of serious misconduct or fraud, you may need to report your tax preparer to the IRS. Use Form 14157 ("Return Preparer Complaint") to report preparer malfeasance. If your tax return or refund was affected by the error, you'll also need to complete Form 14157-A ("Tax Return Preparer Fraud or Misconduct Affidavit").
The Importance of Choosing a Qualified Tax Preparer
To minimize the risk of errors, it's crucial to choose a qualified and reputable tax preparer. Here are some tips:
- Check the preparer's qualifications and credentials
- Ask about their experience with similar tax situations
- Inquire about their error resolution policies
- Read reviews and ask for references
- Ensure they have a valid Preparer Tax Identification Number (PTIN)
Tax Preparer Liability and Penalties
While taxpayers are ultimately responsible for their returns, tax preparers can face consequences for negligence or misconduct. The IRS can impose penalties on preparers who understate a taxpayer's liability due to unreasonable positions or willful or reckless conduct.
These penalties can include:
- Monetary fines
- Suspension or revocation of their PTIN
- Disciplinary action from professional organizations
Protecting Yourself: Best Practices for Working with Tax Preparers
To protect yourself from potential tax preparer errors, consider these best practices:
Review your return carefully: Don't just sign blindly. Take the time to review your return for any obvious errors or inconsistencies.
Ask questions: If something doesn't make sense, ask your preparer to explain it.
Keep good records: Maintain organized records of all tax-related documents and communications with your preparer.
Get a copy of your return: Always keep a signed copy of your tax return for your records.
Understand your contract: Be clear on what services your preparer is providing and what their responsibilities are in case of errors.
The Role of Tax Preparation Software
Many taxpayers and professionals use tax preparation software to minimize errors. However, it's important to note that reliance on software alone doesn't absolve you of responsibility. The Tax Court has stated that unconditional reliance on tax software does not constitute reasonable cause for avoiding penalties unless there's a proven mistake in the software itself.
When to Consider Legal Action
In extreme cases where a tax preparer's negligence has caused significant financial harm, you may consider legal action. However, this should typically be a last resort, as litigation can be costly and time-consuming.
Before pursuing legal action, consider:
- The extent of the financial damage
- Whether the preparer has professional liability insurance
- The potential costs of litigation
- Alternative dispute resolution methods
The Future of Tax Preparation and Accountability
As tax laws become increasingly complex, the role of tax preparers remains crucial. However, the current system of accountability raises questions about fairness and professional responsibility.
Larry Light of Forbes suggests a potential solution: "Perhaps the IRS should change its policy and hold tax preparers more accountable for errors. This could incentivize preparers to be more careful and potentially reduce the burden on taxpayers who rely on professional advice."
While it may seem unfair that taxpayers bear the ultimate responsibility for errors made by professional tax preparers, this reality underscores the importance of due diligence in tax matters. By understanding your rights and responsibilities, choosing qualified preparers, and staying involved in the tax preparation process, you can minimize the risk of errors and protect yourself from potential penalties.
Remember, when it comes to taxes, knowledge is power. Stay informed, ask questions, and don't hesitate to seek additional professional advice if you're unsure about any aspect of your tax return.
