Can I Get in Trouble If My Tax Preparer Made a Mistake?

Tax filing can be a complex process for many individuals, often leading them to seek assistance from professional tax preparers. These preparers offer expertise in navigating the intricacies of tax law, helping taxpayers accurately report their income, deductions, and credits. While a tax preparer can significantly ease the burden of preparing and submitting a return, it is important to understand the division of responsibility. The act of engaging a professional does not entirely transfer the accountability for the information reported to the tax authorities.

Your Ultimate Responsibility

Federal law requires taxpayers to sign their returns under penalty of perjury, affirming that the information provided is true, correct, and complete to the best of their knowledge and belief. This signature signifies the taxpayer’s agreement with all figures and statements on the return, even if they relied on a preparer. Taxpayers are expected to exercise due diligence by thoroughly reviewing their return before signing.

Failing to report income correctly or claiming improper deductions can lead to various consequences for the taxpayer. The Internal Revenue Service (IRS) may impose an accuracy-related penalty, which amounts to 20% of the underpayment attributable to negligence or substantial understatement of income tax. A substantial understatement occurs if the understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000. Taxpayers might also face a failure-to-pay penalty, which is 0.5% of the unpaid taxes for each month or part of a month that taxes remain unpaid, up to a maximum of 25%.

Interest charges also accrue on underpayments from the original due date of the tax return until the payment date. The IRS sets these interest rates quarterly, based on the federal short-term rate plus three percentage points. While rare for simple errors, deliberate fraud or willful intent to evade taxes could lead to more severe civil or even criminal penalties, although this is reserved for cases where the taxpayer knowingly participated in or directed the fraudulent activity. Simply relying on a preparer’s mistake without personal review is not considered reasonable cause for avoiding penalties.

Reasonable cause for penalty abatement is a limited defense, requiring the taxpayer to demonstrate they acted with ordinary business care and prudence but were still unable to meet their tax obligations. This means showing specific facts and circumstances, such as a serious illness or a natural disaster, that prevented compliance. Merely stating reliance on a tax preparer without evidence of having provided accurate information and reviewed the return does not meet the standard for reasonable cause. The expectation is that taxpayers will provide complete and accurate information to their preparer and then critically review the finished product.

Understanding Preparer Accountability

Tax preparers have professional obligations and can face penalties or disciplinary actions for errors or misconduct. The IRS requires all paid tax preparers to have a Preparer Tax Identification Number (PTIN) and adhere to due diligence requirements. Failure to meet these standards can result in penalties for the preparer.

The IRS imposes penalties on preparers for non-compliance with tax laws and regulations. A preparer can be penalized $1,000 for an understatement of a taxpayer’s liability due to an unreasonable position taken on the return. If the understatement is due to willful or reckless conduct, the penalty increases to $5,000 per return. Preparers also face penalties for administrative failures, such as failing to provide a copy of the return to the taxpayer, failing to sign the return, or not including their PTIN, with each instance carrying a $50 penalty, up to certain annual maximums.

Beyond monetary penalties, tax preparers can face disciplinary action from the IRS. Under IRS Circular 230, preparers can be sanctioned, suspended, or even disbarred from practicing for misconduct. These actions can severely impact a preparer’s ability to continue their profession. Taxpayers who suffer financial damages due to a preparer’s negligence or malpractice may also pursue civil action against the preparer to recover losses, such as additional taxes, penalties, and interest paid due to the error.

Steps to Correct Errors

Discovering an error on a filed tax return requires prompt action from the taxpayer. The primary method for correcting mistakes is to file an amended tax return using Form 1040-X. An amended return should be filed within three years from the date the original return was filed or within two years from the date the tax was paid, whichever is later.

When completing Form 1040-X, taxpayers must clearly explain the changes being made and the reason for the amendment. Supporting documentation for the changes, such as corrected W-2s or 1099s, should be attached to the amended return. It is important to send the amended return to the correct IRS processing center.

If the IRS identifies an error first, they will send a notice, such as a CP2000. An audit notice indicates a more formal review of the return. Upon receiving any IRS notice, taxpayers should carefully review it and respond by the specified deadline, providing any requested documentation or explanations. Communicating with the preparer who made the mistake is also advisable, as they may assist in preparing the amended return or responding to the IRS.

In some situations, taxpayers may be able to request abatement of penalties or interest. This request can be made if there is reasonable cause for the error or if it is the taxpayer’s first time facing certain penalties. A request for abatement can be made by calling the IRS or by filing Form 843. Providing clear, specific details and supporting documentation is important when seeking penalty relief.

Selecting a Qualified Tax Preparer

Choosing a qualified tax preparer can reduce the likelihood of errors on your tax return. Taxpayers should look for preparers with recognized credentials. Enrolled Agents (EAs) are federally licensed tax practitioners authorized to represent taxpayers before the IRS. Certified Public Accountants (CPAs) are licensed by state boards of accountancy and possess broad accounting and tax expertise. Tax attorneys are licensed by state bar associations and specialize in tax law.

Verifying a preparer’s credentials and standing is an important preventative step. The IRS offers an online Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to confirm a preparer’s PTIN and professional designation. For CPAs and tax attorneys, state licensing boards or bar associations maintain public directories where their professional status can be checked. These resources help ensure the preparer is legitimate and in good standing.

Taxpayers should be cautious of red flags indicating an unqualified or unethical preparer. These include preparers who guarantee a large refund before reviewing documents, charge fees based on a percentage of the refund, or refuse to sign the tax return or provide a copy. All paid preparers are legally required to sign the return and include their PTIN. A preparer who avoids these requirements is likely not reputable.

Effective communication between the taxpayer and the preparer is paramount. Taxpayers should provide their preparer with complete and accurate information regarding income, deductions, and credits. This includes relevant tax documents, such as W-2s and 1099s. Before signing the completed return, taxpayers should thoroughly review it, ask questions about anything they do not understand, and ensure all information is accurate. Always obtain a copy of the signed return for your records, as this is your official documentation of what was filed.