What If My Tax Preparer Makes a Mistake?

Discovering an error on a tax return can create uncertainty for taxpayers, even when a professional preparer handled the filing. This article provides guidance for individuals who find a mistake on their tax return, outlining steps to address the issue and understand responsibilities.

Identifying a Tax Preparer Error

Errors on a filed tax return can be discovered in several ways. One common method is receiving a notice from the Internal Revenue Service (IRS). A CP2000 notice indicates a discrepancy between reported income or payment information and data the IRS received from third parties. An audit notice, often sent via certified mail, signals the IRS’s intent to review the return more closely, triggered by inconsistencies or unusually high deductions.

Taxpayers might also identify errors by reviewing their own return and noticing something amiss, such as an incorrect filing status or a missed deduction. Sometimes, the tax preparer may proactively contact clients after discovering an error. Common types of errors include mathematical mistakes, incorrect reporting of income or deductions, misapplication of tax credits, or missing forms and schedules. These issues can range from simple data entry errors to more complex misinterpretations of tax law.

Upon discovering a potential error, gather all relevant documentation. This includes the original tax return, supporting documents for income, deductions, or credits, and any IRS notices. These documents provide a clear picture of the reported information and the suspected discrepancy.

Correcting the Tax Return

The first step in correcting a tax preparer error involves contacting the original tax preparer. Discuss the identified mistake with them and provide all gathered documentation, allowing them to understand the error’s nature and scope. This initial communication often leads to a direct resolution.

Corrections to a previously filed individual income tax return are made by filing Form 1040-X, Amended U.S. Individual Income Tax Return. This form corrects errors related to income, deductions, credits, or filing status, and allows taxpayers to explain the changes. The form requires taxpayers to provide original figures, corrected figures, and a detailed explanation for each change.

When completing Form 1040-X, attach any supporting documents that substantiate the changes, such as corrected W-2s or 1099s, or new receipts. Form 1040-X can be e-filed for certain tax years; paper filing remains an option and is required for older returns. Once submitted, the IRS takes 8 to 12 weeks to process an amended return, which can extend to 16 weeks or longer for paper filings.

If the amendment results in additional tax owed, taxpayers should pay the amount by the original tax due date to avoid further penalties and interest. Interest accrues daily on underpayments from the original due date, with rates typically adjusted quarterly. Penalties for underpayment can also apply, generally calculated as a percentage of the unpaid taxes. If the amendment leads to a refund, direct deposit may be available for e-filed Forms 1040-X for recent tax years, while paper filings typically result in a mailed check.

Taxpayer and Preparer Responsibilities

Ultimately, the taxpayer holds responsibility for their tax return’s accuracy, even when prepared by a professional. This includes carefully reviewing the return before it is signed and filed. Tax preparers have their own professional obligations and standards to uphold.

Tax preparers are governed by Treasury Department Circular 230, which outlines rules of conduct for those practicing before the IRS. This includes exercising due diligence in preparing returns, acting with reasonable care and skill to ensure information accuracy. Preparers must make reasonable inquiries if client information appears incorrect, inconsistent, or incomplete, especially concerning eligibility for credits like the Earned Income Tax Credit.

If a preparer’s error causes financial harm, such as penalties or interest, taxpayers may have recourse. Many reputable tax preparers carry professional liability insurance, also known as errors and omissions (E&O) insurance. This insurance helps cover legal defense costs and potential settlements or judgments from negligence or mistakes. Taxpayers can inquire about their preparer’s E&O insurance.

If a preparer acknowledges fault, they might offer to reimburse the taxpayer for penalties and interest incurred due to their error. For serious issues, or if an agreement cannot be reached, a taxpayer can file a complaint against a tax preparer with the IRS using Form 14164, Tax Return Preparer Complaint. State licensing boards may also handle complaints, depending on the preparer’s credentials. In severe cases, legal action against the preparer might be an option, though this is a last resort due to costs and complexities.