If a Tax Preparer Makes a Mistake Who Is Responsible?

Tax season often brings a mix of anticipation and apprehension, particularly when relying on a professional tax preparer. A common concern that arises is the question of accountability if an error occurs on a tax return. Understanding the roles and responsibilities involved can help clarify who bears the burden when mistakes are made, providing a clearer picture of the landscape of tax preparation and compliance.

Taxpayer Responsibility

Taxpayers hold the ultimate legal responsibility for the accuracy of their tax return, regardless of whether it was prepared by someone else. This is rooted in the declaration taxpayers sign “under penalties of perjury” on their tax forms, attesting that the information provided is true, correct, and complete.

Taxpayers are expected to exercise reasonable care and due diligence in reviewing their return before signing it. This includes carefully checking basic information like names, Social Security numbers, and reported income against their own records. If any entries seem unfamiliar or incorrect, the taxpayer should ask questions and seek clarification from their preparer. Providing accurate and complete information to the preparer is also a crucial part of the taxpayer’s responsibility.

Even if an error is directly attributable to a preparer’s mistake, the taxpayer remains liable for any additional tax owed. This liability extends to associated interest from the original due date of the tax. The IRS assesses any additional tax, interest, and penalties against the taxpayer.

Tax Preparer Responsibilities and Conduct

Paid tax preparers operate under specific professional responsibilities and ethical obligations regulated by the Internal Revenue Service (IRS). Treasury Department Circular 230 outlines rules of conduct for tax professionals practicing before the IRS, including attorneys, Certified Public Accountants (CPAs), and enrolled agents. These regulations require preparers to exercise due diligence in preparing returns, ensuring accurate application of tax law and preventing tax understatement.

All paid tax preparers must obtain and use a Preparer Tax Identification Number (PTIN) from the IRS. This unique eight-digit number must be included on every tax return they prepare for compensation. The PTIN helps the IRS track preparers and ensures accountability. Preparers are also required to sign the returns they prepare and provide a copy to the taxpayer.

Common errors include simple math mistakes, incorrect data entry, misinterpreting tax law, or failing to ask necessary questions to gather complete information. Examples are incorrect Social Security numbers, wrong filing statuses, or errors in calculating deductions and credits. Preparers have a duty to make reasonable inquiries if client information appears incorrect or incomplete, especially concerning claims for tax benefits like the Earned Income Tax Credit or Child Tax Credit.

The IRS can impose various penalties on preparers for misconduct or negligence. Under Internal Revenue Code Section 6694, preparers may face penalties for understating a taxpayer’s liability due to unreasonable positions or willful or reckless conduct. Internal Revenue Code Section 6695 outlines additional penalties for failures such as not furnishing a copy of the return, not signing it, or not including their PTIN.

Correcting Errors and Consequences

Discovering an error on a filed tax return requires prompt action, typically by filing an amended return. For individual taxpayers, this means submitting Form 1040-X, Amended U.S. Individual Income Tax Return. This form allows taxpayers to correct previously reported income, deductions, credits, or filing status. When preparing Form 1040-X, it is necessary to provide the original figures, the corrected figures, and a clear explanation for the changes.

The taxpayer is responsible for paying any additional tax due as a result of the error, along with interest that accrues from the original due date of the tax. The IRS charges interest on underpayments, and this interest can apply even if an extension to file was granted. Beyond the tax and interest, taxpayers may also face IRS penalties. Common penalties include the accuracy-related penalty, which is typically 20% of the underpayment attributable to negligence or substantial understatement of tax, and the failure-to-pay penalty, usually 0.5% of the unpaid taxes per month, capped at 25%.

If a mistake is discovered, the first step should be to contact the tax preparer who completed the original return. A reputable preparer should be willing to discuss the error, help prepare the amended return, and potentially cover any penalties or interest assessed due to their mistake. Many preparers carry professional liability insurance that can help cover such costs. If the preparer is unresponsive or unwilling to cooperate, taxpayers can report misconduct to the IRS using Form 14157, “Complaint: Tax Return Preparer,” or Form 14157-A, “Tax Return Preparer Fraud or Misconduct Affidavit,” especially if the return was filed without consent.

The statute of limitations for amending a return to claim a refund is generally three years from the date the original return was filed or two years from the date the tax was paid, whichever is later. However, if the IRS discovers an understatement of income, they typically have three years to assess additional tax, interest, and penalties. In cases of significant understatement or fraud, the statute of limitations can be extended or may not apply.

Protecting Yourself When Using a Preparer

Selecting a qualified and reputable tax preparer is an important first step in minimizing the risk of errors on your tax return. Look for preparers with recognized credentials such as Certified Public Accountants (CPAs), Enrolled Agents (EAs), or attorneys. These professionals have met specific educational and examination requirements and are subject to ethical standards and continuing education. You can verify a preparer’s credentials and check for a valid Preparer Tax Identification Number (PTIN) through the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Clear communication with your tax preparer is essential. Provide accurate and complete financial information, including all income sources, deductions, and credits. Be prepared to answer questions thoroughly, as a diligent preparer will ask detailed questions to ensure accuracy and identify all applicable tax benefits. Avoid preparers who promise unusually large refunds before reviewing your financial documents, charge fees based on a percentage of your refund, or refuse to sign the return and include their PTIN. These are significant red flags that could indicate fraudulent practices.

Carefully review your completed tax return before signing it. This is your opportunity to ensure that all information is accurate and that you understand every entry. Ask your preparer to explain any unfamiliar items or calculations. Do not sign a blank or incomplete return. After the return is filed, obtain a signed copy for your records, along with all supporting documents.

Maintaining organized records of all tax-related documents and communications with your preparer is also important. Keep copies of W-2s, 1099s, receipts for deductions, and any other relevant financial statements. Tax preparers are generally required to retain client records for at least three years, but maintaining your own comprehensive files provides an additional layer of protection and can be invaluable if questions arise in the future.