Income tax preparer messed up, why did the irs penalize me for her stupidity??

Question

In 2002 when I filed my taxes I went to a local "home business" that was run by a woman out of the basement of her house. In previous years I had only received about $200 to $500 back in income tax checks. Nothing had changed as far as my employment for the 2001 tax year.
When I went to this lady, she told me that because I was paying on a student loan, the irs owed me $1000 back. Althought I had never heard of this before, I figured she knew what she was talking about and went along with it. I got a check back for about $1700 for that tax year.
Two years later the irs made me pay back that extra $1000 plus intrest because I had filed for too much money. I was angry.
What I don't understand is why didn't the irs go after this woman who filed the taxes? Her name and address was on the papers. Several of my friends who filed with her had the same problem and had to pay the irs back as well.

Answer 1

You have learned a valuable lesson. It would be better for you to go to a tax preparer that offers a peace of mind guarantee that if your taxes are incorrect the preparer would go to an audit and remedy the errors.

Answer 2

The Internal Revenue Code states that you must assume responsibility for your finances and reporting. That is why the IRS comes to you when there is a mistake on the return, even if you paid a preparer.

The IRS will pursue the preparer only when there is a history of obvious fraud on the preparer's part to claim a refund for the preparer's customers. For example, when I worked for the IRS, I was shown a preparer the IRS was investigating because on all tax returns the preparer signed, all clients took an itemized deduction of $2,000 for the purchase of a new computer EVERY YEAR! That kind of thing the IRS cannot ignore.

They still go after the taxpayer in this case because it is the taxpayer's responsibility to review the return for accuracy before authorizing the preparer to file it. But they go after the preparer only when there is a consistent pattern of suspicious tactics used to reduce a client's taxable income and induce a refund.

Answer 3

No, the preparer is not responsible for any payment. The preparer is sort of like a messenger; not responsible for the message; just puts it down in black and white. There would be no preparers who would do returns if such was the case as there is too much information that gets overlooked or not provided or lost or whatever. People forget that they owe child support or student loans or something that will offset a refund. Or, people forget about selling stocks or bonds; or, the notice never gets to them so they overlook it and it is not included in the return. A good preparer will always prepare a return and then ask the principle to sleep on the subject and see if they remember anything they have forgotten; and it is amazing how much information is added the next day. I always remember an old saying, "Do it right or do it over".

Answer 4

In general, you are held responsible for any return that goes in under your signature. You, in turn, may have a claim against the preparer, but only for the penalties and interest - the theory being that you did, after all, really owe the tax itself.

You can file a complaint with the IRS against the preparer. Get Form 3949-A from the IRS website, fill it out and mail it in. There is a different complaint method if the preparer was an attorney, CPA, or Enrolled Agent, but that seems unlikely in your case.

Answer 5

She did NOT file the return. You did! She only prepared the return. There is a big difference.

You, as the taxpayer, are SOLELY responsible for the accuracy and completeness of your tax return. It there's an error, YOU are liable for the additional tax and any penalties and interest associated with it.

If you weren't sure of what she was claiming, you should have had her prove it to you or you should have asked the IRS for clarification yourself.

Many professionals (CPAs, etc.) will cover any penalties or interest due to their mistakes but they do that strictly as a matter of goodwill; they are under NO legal obligation to do so.

Answer 6

Unfortunately, when you signed the tax form, you were putting your "stamp of approval" on all of the information that she had included in the tax return, meaning that you agreed that all information was true and accurate. Income tax preparers, in the eyes of the IRS, merely prepare the return based on the infomation provided by the taxpayer. Although this seems totally unfair, especially in your case when you were expecting her to be the tax professional, that's just the way they view it. However, you DO get an adjustment for the interest that you paid on your student loan.

Answer 7

While it is unfortunate to get hit with a notice years later when you thought you had paid all your taxes, unfortunately the tax is your responsibility. If the return had been properly prepared, you would have had to pay the amount of tax at that time or your refund would have been accordingly reduced.

Most courts would not hold your accountant liable for the interest/penalties due. But if she's a good accountant, she may offer to split some of this with you. If the omission was your accountant's fault, then she should offer to pay the penalty or attempt to have it waived.

Answer 8

You got money you weren't entitled to through her mistake, so there wouldn't be any reason you should be able to keep it. So you had to pay it back, with interest for the time you had the money.

By signing your return, you take legal responsibility for it, no matter who prepared it. The IRS can't go after anyone for the back taxes except the person whose return it is.

That said, if the preparer had any ethics, she'd cover the amount of any penalties since they were due to her mistake, even though you're the one who is legally responsible. A CPA generally would. The amount that you got back that you weren't entitled to though, would be your responsibility.

Answer 9

You would have owed the $1000 either way.
You're just paying it now (in cash) rather than in 2002 (by getting less refund).

I'm sure that feels like a $1000 hole in your pocket, but by an accountant's view, it's not. You just got to pay the $1000 five years later than you were supposed to. You got 5 years use of that money, which is a good thing, and you're paying interest for that privilege.

Should she pay it? No way. I'm sure it hurts to be out $1000 unexpectedly, but it's your tax bill. Other people don't have to pay your taxes.

Answer 10

It's your tax form so you are responsible for your taxes, not someone you hire to prepare them. When you sign your 1040 you are saying that all information on it is accurate.

So you are responsible to the IRS for the contents of your tax form. However, the person you hired to prepare those forms is responsible to you. Therefore your recourse is to take it up with that person.

Was she certified or licensed? If so then you might have a chance in revoking that certification. If not then it was technically your fault for hiring someone who wasn't qualified to prepare forms. Either way it sounds like you won't have much luck in getting compensation for the interest you had to pay the IRS.

Answer 11

You signed the tax return, so the IRS only wants to talk with you.
Even if you had gone to a CPA or other tax professional, they would normally not compensate you for this since you had the use of the money and were earning interest on it. They normally would compensate you for a penalty, if it was their mistake.