My Tax Preparer Made a Mistake. What Can I Do?

Mistakes on tax returns can lead to significant financial and legal consequences, so addressing errors promptly is crucial. Whether due to oversight or miscalculation by your tax preparer, errors can result in penalties, interest charges, or audits.

Identifying Return Discrepancies

To identify errors, compare your tax return with financial records such as W-2s, 1099s, and other documentation. Pay close attention to common error areas like income reporting, deductions, and credits. For instance, the Earned Income Tax Credit (EITC) is often miscalculated, leading to incorrect tax liability.

Stay updated on tax codes and regulations, which change annually. The Tax Cuts and Jobs Act, for example, introduced changes affecting deductions and credits. Cross-referencing your return with IRS guidelines can help confirm accuracy.

Leverage technology to simplify this process. Tax software or online tools can compare your return to your financial records and flag potential issues while incorporating recent tax code updates. However, verify flagged discrepancies manually to rule out false positives.

Communicating with the Preparer

If discrepancies are found, discuss them with your tax preparer. Approach the conversation with a focus on resolving the issue and bring supporting documents, such as financial statements or IRS notices, to facilitate the discussion.

Ask specific questions about how the return was prepared and the reasoning behind certain figures. This can clarify whether the discrepancy stems from oversight or a misunderstanding of tax regulations. For instance, you might ask about the application of current standard deduction rates or adjustments to credits like the Child Tax Credit.

Work with your preparer to determine corrective actions, such as filing an amended return. They should explain the steps to resolve the issue and offer advice on avoiding similar mistakes, such as keeping up with tax code changes or conducting periodic financial reviews.

Filing an Amended Return

If an error is confirmed, file an amended return using IRS Form 1040-X. This form allows corrections to returns filed within the past three years. Clearly indicate the areas being corrected, such as income, deductions, or credits, and provide explanations for the changes.

Ensure supporting documentation, such as 1099-B forms for capital gains corrections, matches the amended figures. Recalculate any affected tax liabilities or refunds based on current tax brackets and regulations, such as the updated Alternative Minimum Tax (AMT) thresholds.

Timing is key when filing an amended return. The IRS allows up to three years from the original filing date or two years from the date the tax was paid, whichever is later. Filing promptly minimizes penalties and interest. Be aware that submitting an amended return may extend the IRS audit window. Keep thorough records of all changes and supporting documents.

Potential Financial and Legal Implications

Tax return errors can lead to unexpected liabilities, including penalties and interest. For example, the failure-to-pay penalty accrues at 0.5% of unpaid taxes per month, up to 25% of the total owed. Prompt action can reduce financial repercussions. Mistakes may also affect financial statements under Generally Accepted Accounting Principles (GAAP), impacting investor confidence and creditworthiness.

Legally, inaccuracies may trigger audits or investigations. The IRS often audits returns with discrepancies, potentially uncovering other issues. Businesses, especially publicly traded ones, must consider compliance risks, as errors can attract scrutiny from the Securities and Exchange Commission (SEC). Non-compliance with reporting standards can lead to legal challenges and reputational harm.

Options if the Mistake Isn’t Resolved

If your preparer cannot or will not correct the mistake, explore other options. Escalate the issue to professional oversight bodies or pursue legal action, depending on the severity of the problem.

File a complaint with the preparer’s professional organization. If they are a Certified Public Accountant (CPA), report them to your state board of accountancy. For Enrolled Agents (EAs), contact the IRS Office of Professional Responsibility. These bodies can investigate claims of negligence or misconduct and impose sanctions if necessary. Include detailed documentation, such as your tax return, correspondence with the preparer, and evidence of the error.

If the preparer works for a larger firm, escalate the matter internally. Many firms, such as H&R Block or Jackson Hewitt, offer guarantees or protections for errors and may cover penalties or interest resulting from mistakes. Review your service agreement to understand your rights and the firm’s obligations.

For significant financial or legal issues, consult a tax attorney. They can advise on claims for damages, such as negligence or breach of contract, and represent you in disputes with the IRS. If fraud is suspected, report the preparer to law enforcement or the IRS Criminal Investigation Division. While legal action can be costly and time-consuming, it may be necessary in cases of substantial harm caused by misconduct.