Is a CPA Responsible for Tax Errors?

Tax preparation can feel overwhelming, and many individuals rely on Certified Public Accountants (CPAs) to navigate the complexities of tax law. While CPAs offer professional expertise, questions can arise when an error appears on a tax return. Understanding who holds responsibility for a tax error is a common concern for taxpayers. This article explores the roles and obligations of both CPAs and clients in the tax preparation process, along with the steps to take if an error occurs.

Understanding a CPA’s Role and Professional Obligations

A Certified Public Accountant (CPA) is a licensed professional who provides accounting and financial services, including tax preparation, to individuals and businesses. To earn the CPA designation, individuals must meet educational requirements, pass the Uniform CPA Examination, and fulfill experience requirements, typically overseen by state boards of accountancy. CPAs are held to high standards of conduct and competence.

CPAs operate under a professional code of conduct, which mandates principles like integrity, objectivity, and due care. Due care requires a CPA to observe the profession’s technical and ethical standards, exercising competence and diligence in their work. This includes staying current with tax laws and regulations, which are frequently updated and require CPAs to adapt their knowledge.

State boards of accountancy also establish specific rules and regulations that licensed CPAs must follow to maintain their professional standing. These regulations emphasize the CPA’s duty to serve the public interest with skill and integrity.

Determining CPA Responsibility for Tax Errors

A CPA may be held responsible for tax errors when their actions, or lack thereof, fall below the accepted professional standard of care. This often involves concepts such as negligence, misrepresentation, or, in rare cases, fraud. Negligence occurs when a CPA fails to exercise the reasonable care and competence that a prudent tax professional would in similar circumstances, leading to an error. For instance, a CPA might be negligent if they misinterpret a clear tax law, resulting in an incorrect deduction.

Misrepresentation can arise if a CPA makes false statements or omits material facts regarding a tax return, leading a client to believe the return is accurate when it is not. Such errors demonstrate a breach of the CPA’s duty to provide accurate information based on their expertise. Common errors that may indicate a CPA’s responsibility include significant calculation mistakes, failure to apply relevant tax credits or deductions due to a lack of due diligence, or misapplication of tax statutes.

A CPA could also be responsible if they fail to advise a client on important tax implications that are reasonably foreseeable and within the scope of the engagement. Responsibility hinges on whether the CPA breached their professional duty to the client, causing financial harm such as unexpected tax liabilities, penalties, or interest. The IRS assesses various penalties, such as the accuracy-related penalty under Internal Revenue Code Section 6662.

Fraud, while far less common, involves intentional deception by the CPA, such as knowingly fabricating deductions or income figures to achieve a specific, illicit outcome for themselves or the client. Proving fraud requires demonstrating intent to deceive, which is a higher legal bar than proving negligence. In most cases, responsibility for tax errors stems from a CPA’s failure to meet the professional standard of care expected of them.

Client Responsibilities in Tax Preparation

The client plays a role in ensuring the accuracy of their tax return by providing complete and truthful information to their CPA. Taxpayers are legally obligated to maintain adequate records to support the figures reported on their return. The CPA relies heavily on the data provided by the client to accurately prepare the tax documents.

Before signing, clients are expected to review the prepared tax return for accuracy and completeness. The ultimate legal responsibility for the accuracy of a tax return, including any tax due, rests with the taxpayer who signs the return.

Errors that stem directly from incomplete, inaccurate, or misleading information provided by the client do not fall under the CPA’s responsibility. The CPA’s duty of care applies to the information they are given, not to discovering information the client actively withholds or misrepresents.

Steps to Address a Tax Error Made by a CPA

Discovering a tax error on a return prepared by a CPA requires a structured approach to resolution. The first step involves thoroughly documenting the perceived error. Gather all relevant tax documents and financial records related to the discrepancy. This documentation will serve as evidence when discussing the issue.

Next, communicate directly with the CPA who prepared the return. Schedule a meeting or call to calmly explain your concerns and present the documentation supporting the alleged error. Request clarification on how the figures were derived or why certain deductions or income items were handled in a particular way. A professional CPA will be willing to review the return and address your questions.

If an error is confirmed, the CPA can usually correct it by preparing and filing an amended tax return. This form corrects previous filings to report the accurate tax liability. Depending on the nature of the error and the CPA’s agreement, they may absorb any penalties or interest assessed by the IRS that are directly attributable to their mistake.

If a satisfactory resolution cannot be reached directly with the CPA, you may consider professional recourse. You can contact the state board of accountancy in the state where the CPA is licensed to inquire about their complaint procedures. These boards oversee CPA licensure and professional conduct and can investigate allegations of negligence or ethical violations. Professional organizations like the American Institute of Certified Public Accountants (AICPA) also maintain ethical standards and may offer mediation or guidance.