In California's comparative negligence jurisdiction, in a lawsuit, the client is generally in the best position to spot an error and therefore 100% recovery is rare. Anyone who prepares a tax return or refund claim for monetary compensation is a tax preparer. As a signatory or non-signatory preparer, you may be held liable for any errors and for any IRS sanctions. This may include enrolled agents, CPA tax attorneys, appraisers, and any other licensed professionals.
If one of your clients is audited by the IRS and you find an error, you could be liable. Therefore, your client can sue you, forcing you to pay tax penalties, IRS interest, and resulting legal expenses. Whether your accounting practice is responsible for incorrect tax returns depends on numerous factors. It may depend on a retention contract, who made the mistake, if something was omitted, if the customer signed it, and more.
The IRS doesn't care if your accountant made a mistake. It's your tax return, so it's your responsibility. Even if you have hired an accountant, you are liable to the IRS for any errors. So, if the IRS adjusts your tax liability and says you owe more money, it's up to you, not your accountant.
That's why it's vital to establish protections if you're found legally responsible for negligence in your tax preparation work. Applies to tax preparers who knowingly or recklessly disclose information given to them to prepare a tax return or use the information for any purpose other than preparing a return. Tax professionals, including CPAs, tax lawyers, enrolled agents, and unlicensed tax return preparers, are subject to a large number of penalties for conduct that the IRS considers problematic. A tax return preparer can also be someone who is not licensed or enrolled, who receives compensation in exchange for work.
In addition, you can inform the tax preparer to the ethics committee of any professional organization to which the tax preparer belongs, such as Certified Public Accountants, NATP, American Bar Association. If you paid a penalty that was calculated in error, you can request a refund using Form 6118, Claim for Refund of Penalties from Tax Return Preparer and Promoter. To help you avoid some of the most common mistakes that tax preparers make when preparing their clients' tax returns, see this list of penalties for IRS preparers. Attorneys, certified public accountants, enrolled agents, or anyone who is paid to prepare tax returns may have to pay a penalty if they do not comply with tax laws, rules and regulations.
The IRS provides a preparer hotline (866-860-425) to assist preparers with account-related issues and questions about tax law. If the error was caused by your omission of information, you are in danger and you will need to work with your tax preparer to make any necessary corrections. If your tax preparer made a mistake, you can prove it and can show that you trusted the advice of your bona fide tax preparer, the IRS or the California Franchise Tax Board may be willing to listen. If the IRS determines that your tax preparer made a mistake, it can help you avoid fees, penalties and interest (or have your tax preparer pay these costs).
Therefore, it is critical that if an IRS agent even suggests the possibility of a penalty being imposed, the income tax return preparer immediately obtain the advice of a tax attorney to determine how to proceed. If you provided your tax preparer with inaccurate or incomplete information, you may have had no way of knowing that the numbers on your return were incorrect. Ideally, the tax preparer should rectify the error by taking the necessary corrective actions, including filing an amended return at no additional charge, informing the IRS, and compensating the taxpayer to smooth things out. However, your tax preparer must also have legitimate obligations and your contract must give you reasonable rights in the event of an error.
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