My Tax Preparer Made a Mistake, What Should I Do?
Understand how to navigate the aftermath of a tax preparer's error, ensuring a clear path to resolution and financial clarity.
Tax preparation services offer convenience and expertise for many. Despite professional assistance, errors can sometimes occur on a filed tax return. Understanding the steps to take when a mistake is identified is important for maintaining compliance and addressing financial implications.
Understanding Your Responsibility
Taxpayers hold the responsibility for the accuracy of their filed tax returns, regardless of who prepared them. The Internal Revenue Service (IRS) views the taxpayer as the signatory of the return. This means that even if a tax preparer makes an error, any resulting penalties and interest for underpayments or misrepresentations fall upon the taxpayer first.
Taxpayers should carefully review their tax return before signing and submitting it. This review helps identify discrepancies or incorrect entries. By signing, the taxpayer acknowledges the return is true, correct, and complete. Failure to review can lead to unexpected tax liabilities, interest charges, or penalties, such as the accuracy-related penalty, which can be 20% of the underpayment of tax.
Correcting the Mistake
If a mistake is discovered on a filed tax return, the taxpayer must correct it by filing an amended return. For individual income tax returns (Form 1040), the appropriate document is IRS Form 1040-X. This form allows taxpayers to adjust income, deductions, credits, or tax liability from original submissions.
To complete Form 1040-X, you will need the original tax return and supporting documents. The form requires you to show the original amounts, the corrected amounts, and an explanation for the changes. You can obtain Form 1040-X from the IRS website; it cannot be filed electronically and must be mailed to the IRS center.
After submitting the amended return, processing times can vary, often taking 2 to 4 months. The IRS will review the changes and may issue correspondence, such as a refund, a bill for additional tax due, or a request for more information. Keep a copy of the amended return and all related documentation for your records.
Seeking Recourse From the Preparer
When a tax preparer’s error leads to financial damages, such as penalties, interest, or additional tax due, taxpayers have avenues to seek recourse. The initial step is to contact the tax preparer directly to discuss the error and its consequences. A reputable preparer may be willing to cover any penalties and interest that resulted solely from their mistake.
If a resolution cannot be reached directly, taxpayers may consider filing a formal complaint. Professional organizations, such as the American Institute of Certified Public Accountants (AICPA) or the National Association of Enrolled Agents (NAEA), may have disciplinary processes for their members. State boards of accountancy also regulate Certified Public Accountants (CPAs) and can investigate complaints of professional misconduct.
For significant damages where other resolutions fail, pursuing civil action against the preparer might be an option. This could involve filing a lawsuit in civil court to recover the financial losses incurred due to the preparer’s negligence. Consulting with an attorney specializing in tax law or professional liability can help evaluate the viability of such a claim.
Preparer Accountability
Beyond the taxpayer’s direct recourse, tax preparers are subject to oversight and potential penalties from the IRS for errors or misconduct. The IRS has the authority to impose various penalties on preparers, including those for negligent or willful understatement of tax liability, or for failing to meet due diligence requirements for certain credits. For instance, a preparer could face a penalty of $500 for negligent understatement of tax.
The IRS Office of Professional Responsibility (OPR) enforces professional standards for tax practitioners, including those who hold a Preparer Tax Identification Number (PTIN). OPR can investigate complaints and impose sanctions, which may range from monetary penalties to suspension or disbarment from practicing before the IRS. Professional organizations and state licensing bodies also play a role in disciplining their members for ethical or professional lapses, ensuring adherence to industry standards.