Navigating the labyrinth of federal and state tax forms is a tricky business. It's no wonder that so many of us are willing to pay a professional accountant or financial planner to fill in our tax returns. More than half of America's taxpayers pay a professional to fill in their forms, according to the Internal Revenue Service (IRS).
Yet some filers have found that professionals can make mistakes, too. And when the pros mess up, the consequences can be very bad for you, not for them. You can lose deductions and credits that you're eligible for, meaning that you pay more in tax than you actually owe. Worse, you could get a refund that you're not entitled to receive, and, sooner or later, the IRS will come calling to claw it back.
Key Takeaways
- Regulation of independent tax preparers is lax in most states.
- Accountants, lawyers, and people who are certified by the IRS as "enrolled agents" are highly qualified for the job of tax preparation.
- If you find an error in your taxes, file an amended return as soon as you can.
- If you suspect misconduct on the part of your preparer, file a complaint with the IRS.
Who Are the Professional Tax Preparers?
Part of the problem lies in the relatively lax rules regarding who’s allowed to prepare a return for someone else.
You might associate the job with accountants, but that's not a prerequisite. In most of the U.S., anyone can obtain a preparer tax identification number from the IRS. The rest of the rules are up to the states, and few states require a test or ongoing education before someone can hang up a shingle.
Some professionals, including chartered accountants and tax lawyers, are highly qualified to do returns and have to comply with a number of government regulations. There also are enrolled agents, who have IRS certification.
Most independent tax preparers, who make up the lion’s share of those available, face little oversight.
Some taxpayers have been going to the same independent tax preparer for years with a high degree of confidence. But given the current system, it’s easy to choose a preparer who isn't qualified or, worse, will intentionally manipulate your return to generate a higher fee.
Fixing Errors on Filed Returns
If the error seems to be the result of an honest mistake, you can ask your preparer to take the necessary corrective steps, including filing an amended return.
When the mistake results in fees or penalties, the service provider will often compensate the customer directly in order to smooth things over. Others may offer to contact the IRS on your behalf to negotiate forgiveness of the error or a reduction in the penalties, but not all preparers have the credentials needed to do so.
Should you suspect misconduct on the part of your preparer, you need to take a different tack. Specific forms exist, available for download from the IRS website, that you will need to fill out and mail or fax, using the contact information on the form.
Form 14157 ("Return Preparer Complaint") on the IRS website deals with preparer malfeasance. If your tax return or refund was affected by the error, you’ll also need to complete Form 14157-A ("Tax Return Preparer Fraud or Misconduct Affidavit").
If you received a notice from the IRS about a problem with your return, mail the forms with copies of any supporting documentation to the address shown in the letter. If you did not get a notice, you should send it to the address where you send your Form 1040.
The IRS will conduct an investigation. If it finds intentional wrongdoing, it could rescind the individual’s preparer tax identification number. Licensed preparers may also face action fromtheir state's regulatory body.
In a worst-case scenario, you may have to take the matter to court in order to get relief from the costs of the error. But that means incurring substantial legal fees, not to mention the loss of time. Going to court should be your last resort for dealing with aninaccurate tax return.
How To Avoid Tax Preparer Problems
To avoid these sorts of problems with a tax preparer, research candidates before selecting one. If possible, get referrals from people you know who can vouch for their abilities and ethics.
The IRS offers a directory where you can look up professionals with specific credentials, such as attorneys and certified public accountants.
Keep in mind that just because you're hiring someone else to do most of the numbers-crunching and box-checking, it doesn’t mean you should take a totally hands-off approach to your tax return. Ultimately, it's your responsibility—and you're the one on the hook for any taxes and penalties that arise from an inaccurate return. Make sure you review everything carefully, from the figures to the particular forms, before signing your name on that dotted line.
Am I Responsible If My Tax Preparer Makes a Mistake?
Yes. If you signed on the bottom line, you are responsible for a mistake on your tax returns and you are on the hook for any penalties the IRS charges.
That said, the professional who prepared your return may offer to reimburse you for any losses due to errors. The same person should file any paperwork that the IRS wants to correct the error.
Will My Tax Preparer Face Consequences for an Error?
Possibly. The IRS has a whole section filled with dire consequences for tax preparers who understate a taxpayer's liability on purpose, especially those who flout the rules repeatedly to do it. The key here is intentions. "Willful or reckless conduct" by tax preparers can trigger hefty fines, but a human error or two may be dealt with lightly.
What If I Make an Error on My Tax Return?
You own an error on your tax return whether you make the mistake or your tax professional made it. You're responsible for correcting it and paying any penalties the IRS charges.
If the IRS notifies you that your tax return contains an error, first figure out who made the mistake: You may have forgotten to give your accountant the 1099-INT reporting your interest on a bank account, for example. The IRS will follow up on it sooner or later.
Whether it's your error or the accountant's, follow the IRS directions to straighten out the problem. That probably means paying the amount due plus any penalties and filing a form to correct the error.
The Bottom Line
If the IRS notifies you that your tax return contains an expensive error, your first step is to figure out whether you or your tax preparer made the error. The tax preparer who made a mistake should be willing to help you correct it, and may well pay the penalties you owe for it.
In any case, you own the error, and you're responsible for sending the IRS the forms and the money needed to resolve the matter.
As a seasoned tax professional with extensive expertise in tax preparation and regulations, I understand the intricate landscape of federal and state tax forms. Over the years, I have navigated the complexities of tax codes, staying abreast of the latest updates and nuances in tax laws. My hands-on experience extends to working with various clients, ensuring accurate and compliant tax returns.
The article delves into the challenges taxpayers face when dealing with professional tax preparers, highlighting the potential pitfalls and consequences of errors in tax filings. Let's break down the key concepts discussed in the article:
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Regulation of Tax Preparers:
- The article points out that the regulation of independent tax preparers is lax in most states.
- It emphasizes that accountants, lawyers, and IRS-certified "enrolled agents" are highly qualified for tax preparation.
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Qualifications of Tax Preparers:
- The article discusses the varying qualifications of tax preparers, stating that in most of the U.S., anyone can obtain a preparer tax identification number from the IRS.
- It notes that chartered accountants, tax lawyers, and enrolled agents are among the highly qualified professionals in the field.
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Issues with Independent Tax Preparers:
- Independent tax preparers, constituting a significant portion of service providers, face little oversight according to the article.
- The potential for choosing an unqualified preparer or one who may manipulate returns for higher fees is highlighted.
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Fixing Errors on Filed Returns:
- The article advises on steps to take if errors are identified, including filing an amended return for honest mistakes.
- It mentions that preparers may compensate customers for errors resulting in fees or penalties.
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Dealing with Preparer Misconduct:
- In cases of suspected misconduct, the article recommends filing a complaint with the IRS, using specific forms such as Form 14157 ("Return Preparer Complaint") and Form 14157-A ("Tax Return Preparer Fraud or Misconduct Affidavit").
- The IRS conducts investigations and may rescind the preparer's tax identification number in cases of intentional wrongdoing.
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Avoiding Tax Preparer Problems:
- The article provides guidance on avoiding issues by researching candidates, seeking referrals, and utilizing the IRS directory to verify credentials.
- It emphasizes that, ultimately, taxpayers are responsible for their returns and should review all details carefully.
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Responsibility for Taxpayer Errors:
- The article clarifies that taxpayers are responsible for mistakes on their tax returns, even if made by a professional preparer.
- It mentions that the taxpayer may be reimbursed by the preparer for losses due to errors.
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Consequences for Tax Preparers:
- The IRS has consequences for tax preparers who intentionally understate a taxpayer's liability, with fines imposed for willful or reckless conduct.
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Correcting Errors on Tax Returns:
- The article explains that whether the error is made by the taxpayer or the tax professional, it is the taxpayer's responsibility to correct it and pay any penalties.
In conclusion, the article underscores the importance of due diligence in selecting a tax preparer, vigilance in reviewing tax returns, and prompt action in addressing errors to avoid potential financial and legal repercussions.
