Do I have any legal recourse against the firm who prepared my taxes?

Question

I just received a letter from the IRS stating that in 2005 I didn't claim my capital gains and that I owe them penalty and interest. My 1040 was prepared by a firm and they left out a Schedule D. I supplied the 1099 but they didn;t file it. Now I'm looking over my 2006 1040 and they left off the Schedule D again! Now I have to amend my 1040 and send it in with the proper Schedule D filled out and I will have to pay more penalties and interest. I feel I should not be responsible for their incompetence.

Answer 1

Legally, YOU and YOU ALONE are responsible for the accuracy of you tax return. That said, must reputable companies will pay any penalties and interest resulting from THEIR error. You would have paid tax on the gains in any case. I would recommend actually amending your return for BOTH year and NOT using the numbers the IRS came up with. They usually assume the full proceeds are taxable, not just the gain. You probably owe less than the IRS estimate.

Answer 2

Realistically, no you do not have any legal recourse unless you can absolutely PROVE beyond a shadow of a doubt that you provided the information to the preparer and the preparer ignored it. Good luck proving that because the preparer will simply say "We never saw that, and by the way we do thousands of returns a year and you are the only one making such a claim - so which is more likely: we forgot to include it on your return two years in a row or you never gave it to us?"

Honestly the best thing to do is tell them to either pay the penalty and interest or lose you as a client. If they refuse, than go elsewhere and make sure your friends and colleagues know what happened. Otherwise you will simply pay an attorney as well as paying the IRS.

Answer 3

You need to provide the preparer with the purchase price of the item(s) you sold. It may or may not be the case that you owe additional taxes. The IRS does not know the purchase price and is assuming it is zero. The taxes, penalties, and interest are likely overstated.

Go back to the same place and talk to the owner/manager and get it straightened out. If the preparer had omitted information you provided them, at least they should prepare the amendments for free. If penalties or interest are due, the large preparation places will pay that. You should at least ask that they do this.

However, you are responsible for the taxes due regardless of the lack of competence of the preparer.

Answer 4

A reputable firm will take responsibility for the penalties (not the tax). Talk to the manager/partner/owner. A CPA is also responsible to their association, and you can file a complaint if they won't make it right. State-certified preparers also have regulatory agencies (varying by state-- not all states certify preparers). For an unlicensed preparer, you may be out of luck. You can try small claims.

As to talking to a lawyer, unless you;re talking about a lot of penalty, it would cost more than you'd recover.

You can also write a letter to the IRS, asking them to abate the penalties "for cause" because your tax preparer was an idiot. (Phrase it nicer of course.) Explain the facts and often they'll take the penalties off your account.

Answer 5

You, as the taxpayer, are SOLELY responsible for your tax return. You should have reviewed it before you signed it. Had you done so, you would have caught the error and had it corrected.

Some preparers will cover your penalties and interest due to their error but they are under no legal obligation to do so. No preparer will pay your taxes, that's entirely on you.

Answer 6

Why don't you show all this to the tax preparer?

I think a fair outcome would be that he pay the interest and penalty, but you pay the tax you would have owed anyway.

If he refuses, then you might sue in small cliams court.

Answer 7

yes talk to a lawyer and find out what you can do