Are Taxpayers Responsible for Errors Made by Tax Return Preparers?

 Posted on August 17, 2022 in Taxation Law

Taxes can be very complicated, and many people rely on accountants or other professionals to help them prepare and submit their tax returns and other required forms and documents. Unfortunately, taxpayers may encounter situations where they find that tax returns submitted to the IRS or the California Franchise Tax Board (FTB) contained incorrect information due to errors made by a tax return preparer. When a taxpayer faces a tax audit or tax penalties based on tax returns prepared by someone else, they will need to understand how to address these issues.

Liability for Tax Return Errors

When a taxpayer signs and submits a tax return, they are legally responsible for addressing issues related to the information they submitted. This is true regardless of whether the tax return was prepared by another person. This means that if the information provided on a tax return was incorrect, the taxpayer will usually be responsible for paying any taxes that are owed, as well as any penalties that may apply.

If there are issues related to a tax return, a taxpayer can review the contract they signed with the tax return preparer to determine their options. A contract may specify the obligations that apply to the preparer and detail the procedures that will be followed in these situations. If the preparer agrees that they made errors when preparing the tax return, they may be required to submit any required corrections to the tax return in question, and they may be obligated to cover penalties or interest related to their errors. However, the taxpayer will be required to pay any taxes that are owed.

The IRS and California FTB may also assess penalties for preparers who make errors when preparing tax returns for others. The IRS’s penalty for understating a taxpayer’s liability based on “unreasonable positions” is either $1,000 or 50 percent of the income the preparer earned, whichever is greater. If a preparer engaged in “willful or reckless conduct” and intentionally violated tax laws when preparing a tax return, they may be subject to a penalty of $5,000 or 75 percent of the income they earned for a specific return, whichever is greater. If a taxpayer can show that they submitted a tax return in good faith, believing that all information was correct, but penalties were assessed due to mistakes made by a preparer, the taxpayer may be able to request a “reasonable cause” penalty abatement.

Contact Our San Jose Tax Penalty Abatement Attorney

It is important to fully review a tax return before submitting it to the IRS or FTB. Failure to do so may result in penalties based on errors made by a tax return preparer. However taxpayers who are facing these types of penalties may have options, including in cases where they submitted incorrect tax returns through no fault of their own. At John D. Teter Law Offices, we can provide representation during a tax audit or in other situations where a person is facing tax penalties, and we will help taxpayers determine their best options for minimizing their financial burdens. Set up a consultation with our San Jose, CA tax audit lawyer by calling 408-866-1810.

Sources:

https://www.irs.gov/newsroom/tips-for-choosing-a-tax-return-preparer

https://www.ftb.ca.gov/forms/misc/1024.pdf

https://www.irs.gov/payments/tax-preparer-penalties