If you're facing an IRS audit, you may be concerned about what will happen if the IRS finds a mistake in your return. A common question we get from clients is whether they can get in trouble for a mistake made by an accountant or tax preparer. Rest assured, the IRS is unlikely to criminally prosecute you if your tax preparer just messed up.
What Happens if My Tax Preparer Makes a Mistake?
Unfortunately, mistakes happen. If the IRS finds a mistake on your return that results in an underpayment of your tax liability, you, and not your tax preparer, will have to pay the taxes and any penalties or interest. If the mistake happened because you failed to give your tax preparer a form or some information, the mistake is not your tax preparer's fault.
However, if the mistake was your tax preparer's, you should notify them of any correspondence from the IRS right away. You can then work with your tax preparer to fix the mistake. Ideally, your tax preparer should file an amended return for you at no cost and notify the IRS of the mistake. However, depending on your contract, they may not be required to do so.
Do I Have Any Recourse?
Although you're still on the hook for any IRS penalties or interest, you aren't entirely without recourse for your tax preparer's mistakes. If you suspect wrongdoing and not a simple mistake, you can report them to the IRS. According to the IRS, you can report a tax preparer for the following actions if the mistake affected your return or refund:
- Filing an individual Form 1040 series return without your knowledge or consent,
- Altering your tax return documents,
- Using an incorrect filing status to generate a larger refund,
- Creating false exemptions or dependents to generate a larger refund,
- Creating or omitting income to generate a larger refund,
- Creating false expenses, deductions, or credits to generate a larger refund, and
- Misdirecting your refund.
If the tax preparer's mistake doesn't affect your return or refund, you can report them to the IRS for “improper tax practices” such as:
- Failing to enter their Preparer Tax Identification Number on the tax return or using a number belonging to someone else,
- Refusing to provide you with a copy of your tax return,
- Not signing the tax returns they prepared and filed for you unless you filed electronically,
- Not returning your records or keeping the records until you pay the tax prep fee,
- Using off-the-shelf tax software or IRS Free File, which are meant for individuals and not tax professionals,
- Falsely claiming to be an attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary.
In some cases, you may also be able to sue your tax preparer if the mistake was big enough, but it may be difficult to show that you couldn't have caught the mistake. In the end, the best way to avoid paying more down the road because of tax prep mistakes is to hire a tax professional that you trust.
Hire an Experienced Tax Attorney
If you're facing an IRS audit with mistakes on your return, it may be time to bring in a professional, especially if you suspect your tax preparer of wrongdoing or fraud. The attorneys at Gabaie & Associates, LLC have decades of experience helping our clients solve complex tax problems and guiding them through IRS investigations. Contact Gabaie & Associates, LLC online for a free consultation or call them at 410-358-1500.