Tax advisors may be able to take corrective action to eliminate or at least mitigate liability risks. They should strongly encourage the taxpayer to correct the error or omission by amending the return. As we mentioned earlier, not only does the practitioner have an ethical obligation to provide such advice, but documenting the need to file an amended statement can ultimately reduce harm. In most cases, taxpayers can avoid accuracy penalties under Section 6662 by filing a “qualified amended return” (Treas. Reg. § 1.6664-2(c)(3)). In addition, an adequate payment submitted with the amended tax return will limit the accumulation of additional interest. Unfortunately, errors do occur. If the IRS finds an error in your tax return that results in insufficient payment of your tax liability, you, not your accountant, will have to pay taxes and penalties or interest. If the error occurred because you failed to provide a form or information to your accountant, the error is not your accountant`s fault.
CPAs are human and mistakes happen. Errors can be corrected with an amended submission if necessary, so notify your CPA immediately. Whether you are the person responsible for complying with your employer`s tax regulations or a small business owner reporting business income on a personal income tax return, you have the same options for correcting the situation. However, the actions to be taken after the CPA`s error is discovered depend on the financial cost of the error. Suing a tax advisor is often the last resort, as the taxpayer would have to incur considerable legal costs. However, if the amount is significant, bringing the case to court may result in exemption from unjustified taxes and fees. If the accountant is not registered with the IRS or licensed by the state, the only recourse to legal action is that litigation from a tax advisor is usually the last resort, as the taxpayer would incur significant legal fees. It is possible to obtain an exemption from taxes and fees unduly paid if the amount in question is significant. If the accountant is not registered with the IRS or licensed by the state, the only recourse may be legal action. If you discover errors on older tax returns, the limitation period may prevent your CPA from changing them. For errors that cause you or your employer to pay more income tax than would have been due if the tax return had been accurate, the IRS will give you the longer period of three years from the tax return due date or two years from the date the tax was paid to file an amended tax return to claim a refund.
It is also important to determine if the error results in penalties and interest charges. Penalties and interest are only incurred in the event of insufficient payment of tax. In this case, the only way to mitigate the damage is to end these penalties and interest. This can only be done by paying the unpaid tax bill with the amended tax return you submitted. If the mistake is your fault, you will be fined 0.5% each month if the balance is not paid. In the following cases, you can always report the tax advisor if the error does not affect tax returns or refunds. Suing your accountant is usually the last resort, Hockenberry warns. “Depending on the amount, you might want to assess whether it`s worth it,” she says. “If it was a large sum, I would definitely take it to court. But you have to be aware that the taxpayer is spending money, so to speak, to get money, so that`s the unfortunate part of it. All taxpayers are responsible for the information on their own tax returns, according to the IRS.
The same applies whether you hire a paid preparer, use a personal or business accountant, use tax software, or file your own tax returns. In other words, even if your accountant doesn`t file your tax return and isn`t reachable, you still need to file a tax return on time. You may be fined and interest is charged if you file your return late or not at all. The most sensible way to avoid mistakes made by tax advisors is to read your tax return carefully before signing it. Tax returns contain a return at the end that emphasizes that the taxpayer agrees that all information on the return is accurate and factual. Review the information you provided to your accountant. In order to obtain the most accurate return, it is your responsibility to provide the accountant with all relevant documents. But not all mistakes made by tax advisors are necessarily a fault.
Practitioners may be exonerated if their advice is erroneous due to a simple error in judgment in relation to a questionable or unresolved area of law. In other words, the law does not require tax professionals to guarantee certain results. One case illustrating the application of this rule is Smith v. St. Paul Fire & Marine Insurance Co., 366 F. Supp. 1283 (M.D. La. 1973), aff`d, 500 F.2d 1131 (5th Cir. 1974).
In Smith, following the death of a deceased person, a lawyer argued that a beneficiary of a will was allowed to use the alternative valuation date to calculate the basis of inherited property, a position that was found to be erroneous by subsequent case law that was not known at the time of the initial consultation. For example, in some cases, the creator may be required to pay the interest and penalties you have accumulated due to the errors, but not the additional taxes you owe to the IRS. In other cases, you may have the option to purchase additional insurance upon your return, which requires the creator to pay interest and penalties, as well as any additional taxes you owe due to their mistakes. You may need to take a different approach if you suspect wrongdoing. Form 14157 must be completed and filed with the IRS along with all supporting documents. Form 14157-A must be filed if the error affects your tax return or refund. In the worst-case scenario, you may have to take the case to court to be freed from the cost of the mistake. But that means significant legal fees, not to mention wasted time. Going to court should be your last resort to deal with an inaccurate tax return.
Take a deep breath and don`t panic if you find an error on your tax return. To correct errors, you must first find them. Before you go to your accountant`s office with a flashlight and pitchfork, make sure you have provided all the documents and information they need to file the tax return correctly. “The accountant obviously can`t know if something exists if the person hasn`t told him about it,” warns Bryan Kesler, an auditor in Charlotte, North Carolina.