If the IRS comes a-calling, demanding you fix the inconsistencies — hopefully without a full, nightmarish audit — then here’s what you need to do:
Mistakes happen — even on taxes. Keep that in mind if the IRS flags your return. There’s no need to go ballistic on your preparer without the full details and an assessment of where things went wrong. This is especially important to remember if your tax preparer is not a certified accountant; if you had a friend or family member do your returns because they’re “good at math” and you wanted to save money, you only have yourself to blame.
Review the Documents You Provided
Just as tax preparers are capable of making mistakes, so you are you. It’s possible the error doesn’t stem from an oversight of the preparer but, rather, from you.
“Countless times ‘mistakes’ result from the taxpayer not providing the tax preparer with adequate information,” says Jon Biondo of Biondo Law Firm in New Jersey. “One of the most common mistakes is under-reporting income. Generally, this isn’t the preparer’s fault — it’s the taxpayer’s fault for not providing the 1099 they received. Preparers are humans, and mistakes happen, but both sides need to be reasonable in the amendment process.”
Contact the Preparer
If the mistake is big enough, it could draw the attention of tax inspectors. So to avoid an audit, contact your preparer as soon as you notice the mistake. They’ll be able to tell you how serious the mistake is and the best way to proceed.
“Often times, this means filing an amended tax return,” says tax attorney Sam Brotman, founder of Brotman Law in San Diego. “File Form 1040X (Amended Tax Return) and any additional documents that illustrate or explain the mistake. If the mistake is big, it may require paying levies or filing a lawsuit. Be sure to refer to the statute of limitations for your particular situation. If you catch this error after a significant amount of time has passed, your options may become more limited.”
Amend the Return
If the problem stems from an error the accountant or tax preparer made, ask them to revisit the documents and figure out what went wrong. They have the most intimate relationship with these numbers at this point, and the error was likely their fault. As such, they also should cover the cost of the mistake.
“When a preparer makes a mistake, the IRS or state tax authority will likely abate any penalty they impose on the taxpayer as long as the preparer owns up to it and amends the return,” says Biondo. “Amending the return should be a service the offending preparer does for free — and if the IRS does not abate, the preparer should pay the penalty.”
There is an exception to this rule, however.
“If the IRS charges interest,” Biondo adds, “it really isn’t the responsibility of the tax preparer, since the taxpayer had use of the money during the period interest accrued.”
Revisit Old Returns
If an error is found on your return, there’s a possibility that the same mistake was made on previous returns — especially if you’re using the same preparer. That’s not all bad news though. If you overpaid, there’s a three-year window from the return’s due date — or two years from the time the tax was paid — to file an amended return and claim a refund. If you underpaid, the IRS can’t collect additional tax if the original deadline or file date was three or more years ago. In all other cases, you could be liable for money owed.
Nobody likes going to court, but if the mistake on your return resulted in major penalties and your tax preparer won’t take responsibility for them, then you may want to consider filing suit. If you’re successful, you’ll generally be awarded with a judgment that allows you to recover penalties, fees you may have paid to other preparer’s to fix the original mistake. Depending on where you live, you may be entitled to interest charges too.
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