Under reported income?

Question

I just got audited for 2004. The IRS said I had 180,000.oo in my accounts which was unaccounted for. My question is was it my accountants responsibility to tell me my bank accounts and records weren't balanced before he filed it that year? Surly as an accountant, he should had known that it would be a problem. Cause now the IRS wants me to find what it was after three years. And my records arn't in the best shape. Alot of the papers were already disintegrated naturally.. There is pretty much no way I can tell how that much records was missing. Now I just recieved a letter from the IRS about 2005 and possibly 2006. What should I do? I don't know what went wrong. Should my accountant take some responsibilities as far as penelties and interests?

Yes.. i am self employed. And I hire the CPA for all accounting services including paychecks, tax returns, and pretty much anything and everything that has to do with accounting. Each month I would give him all my sales reciepts, cash register tapes, checks wrtten out, checks recieved, bank statements, deposits and withdraws. We started with his partner.. then she died of cancer and he took over. Started charging me almost twice as much so I told him I cant do business with him anymore. Two years later, I get an audit letter for the last year he helped me. I feel alittle bit of foul playing but I can't really put my foot down on it.

Answer 1

Depends on what you hired your accountant to do. If you had him balance your bank accounts and records, then yes it would have been his responsibility to tell you that they weren't balanced. My question is what would he have needed your bank accounts for? And what record are your talking about? I'm guessing that you are a self-employed person. Ultimately it's your responsibility to make sure that your tax return is accurate, since it is your tax return. Were all your records on paper? Why not use an accounting software program to keep track of your records and bank accounts. I am a CPA/Tax Preparer and a lot of our clients use Quickbooks. Need to know though what records you gave to your accountant, and what you had him do before I say whether he has any responsibility for penalties or interest.

Answer 2

Since an accountant prepared your 2004 return, you should consult with him. He should have the records and information necessary to explain how your return was prepared.

You are about to get an object lesson in record keeping. Please learn from it! The law is pretty explicit about keeping accurate records and how long they need to be maintained for. When dealing with that amount of money, there's simply no excuse for being lackadaisical about it.