If your accountant or tax preparer makes a mistake on your taxes, guess whose problem it is? Yep; all yours.
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:
Stay Calm
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.
Consider Litigation
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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I came upon an error my CPA made in 2011. I generally did my own taxes after that and made the same error. This is due to the way the tax software is set up and it did not ask the appropriate question. I assume it was the same with her software. I did not take an exclusion I should have and I overpaid NYS taxes for 5 years!! I realized it by chance this year when doing my 2016 taxes. I even called NYS tax dept. to verify. I then had the tax preparer and asked her to do 3 years of amendments so I could get the money back for those years. But the 2011 return she originally did for me was past the 3 year window, so I lost out on that one, as well as a couple of others that I had done. However, she is charging me for the 3 years of amendments she is doing and I feel she should of at least done one for free. But I did not raise the issue as I want her to get these done for me, though I did mention to her that she also missed this in 2011.
Thanks for sharing your experience with us, MaryAnn. On a positive note, at least the error was in your favor and not the tax man’s!
I had filed my taxes for 2019 and the preparer had my 2017 w2s by mistake; we caught the error and the preparer did the amendment for free. This is where it went to hell…. after the amendment the tax return is still being processed, a year-and-a-half after I filed. To this day I have still not seen my refund or an updated status.
Yikes. That’s terrible, Thomas. I had to file an amended return this year because I forgot to include some income. In my case, the amended return cleared in about 90 days after it was submitted.
I once received a letter from the IRS that due to a math error I had under paid a small amount. While I had a CPA who guaranteed his work, The letter said if I paid by a certain date, there would be no penalty or interest.
The policy of the CPA firm was for mistakes, they would pay penalty and interest, but I was responsible for the tax. Contacting the accountant would have put me past the date, so I simply paid it. it was less than one hour of my income.
So here I am again in 2021. A new CPA I hired to do our 2020 return made two errors. I realized it right after he filed the return electronically. I just so happened to be reading something on a financial forum where a similar error occurred due to a software issue and decided to look at our return that evening. Yup- the accountant made the same mistake on our return! I then scrutinized the rest of the return even further and found another mistake! At first when I called him he argued with me, so I had to send him an email with links to the correct information. He then realized I was right. He said that he had new software and with all the new tax changes in 2020 it did not pick it up. This is what happens when you rely on computers and do not use your brain additionally! He immediately did an amended return which resulted in an even a bigger refund for us, but because of that now our refund- which is substantial- is in IRS limbo land. And it was filed originally on 2/26 and the amended return on 3/5. Who knows if we will ever see the money and this was the first time we were ever getting such a huge refund! Lesson- always check your returns and don’t assume your accountant got it right. And even if you are getting a big refund do not be on a hurry to have it filed. Check it and double check it and wait to see if anything in the tax codes changes as well. Our son filed right away and he actually owed money- which the IRS took promptly, of course– and then later on the government changed the code that he did not have to pay taxes on unemployment for 2020. Now he has to wait for that money to be refunded to him!
I can attest to tax software being inaccurate at times. A couple of years ago I got an IRS letter saying I owed them several thousand extra dollars — it turned out that TurboTax failed to account for an obscure tax law change that affected a relatively small but unlucky subset of individuals. Unfortunately for me, I was part of that subset! To their credit, TurboTax paid the interest charges (the IRS did not apply any penalties, although if they had those would have been paid by TurboTax too) — but it was still a hassle having to pay a few grand out of my pocket!
Hello if my tax prepare made an error on my taxes, I did get letter and the preparer was not taking responsibility kept making excuses and claiming he made No mistakes, which evidently he did. I ended up calling IRS for state tax , and the repeat sonics and she pointed on the errors and fortunately I was able to fix that myself. I calledthe tax prepare and let him know about his errors and that I went ahead and fixed that ( already resolved) he still would not take responsibility. Nos I know I will not be going back to him. My question is, should I be contacting IRS for Federal taxes as well, I’m wondering if errors are also same for those. I claimed head of household, 1 dependant, and he had left areas blank regarding my dependant, as if she wasnot living with me( which she has). Should I contact Federal agency to look into this, I thought it was same place, I’m confused.
Susana, if your federal return is in error too, then you can file an amended return with the necessary corrections. I had to do that a few years ago; it wasn’t too hard. 😃
Here is some more info from the IRS on what to do if you find a mistake on your return: https://www.irs.gov/faqs/irs-procedures/amended-returns-form-1040x
If you don’t want to do this yourself, I recommend finding a reputable tax preparer like H&R Block or Jackson Hewitt and they will file the amended return for you.