IRS audit... is my tax preparer liable?

Question

We've used the same tax preparer for many years. Nothing fancy, one of the big name franchise's. Without any major deductions or audit flags we've been selected for an IRS audit. My wife and I are both W-2 workers and collectively earn just under $100K/yr, claim standard deductions (mortgage interest, kids (no EIC), nominal business expenses -- less than $1000/yr for business supplies, lunches, etc... and some mileage for business travel in a car that I own, (less than 10K miles per year and I'm in B2B sales), no investment losses or non-standard or "creative" deductions). Just seems so odd that we'd be selected for an audit. Is my tax preparer accountable to me for this audit? Is selection totally arbitrary or, are certain flags looked for?

Appreciate all the feedback. Yes, business expenses are unreimbursed, mileage claimed is mileage not paid by my employer for business travel in my own vehicle. And, perhaps "liable" was a poor choice of words. I think "accountable" is probably better. Just seems we pay a fair premium for sound advice in completing our returns and advising us on what we should include and what not to include (so to speak). I'd like to believe I've paid for a bit more than someone simply filling in the blanks with the info I've provided. Wouldn't be much of a service if that were the case.

Answer 1

I am sorry to hear of the situation with the IRS.. What kind of IRS? Did you receive a letter, did the IRS tell you to come in or do they want to meet you at your house?

In most cases, taxpayers are sent a "OOPS, discrepancy letter" which is a correspondence audit. This is nothing major, but just is asking you to either pay up what the IRS determines you should pay OR your numbers are off from calculations.. This is the most widely used audit..

Now, if you are being summoned to come in to their office (called an office audit), they have some questionable expenses that they want to address with you in person (in other words, you may have some not serious, but flagrant numbers they want to discuss)...

If they contacted you to say they are paying you a visit to your house, then this is a HUGE RED FLAG.. This is called a field audit.. If this is what they have chosen, I recommend you IMMEDIATELY seek representation. A field audit is the worst of them all.. I call this audit the "blood audit." They want blood because they have something bad on you... Most of the time this is done because there are some very QUESTIONABLE expenses... From what I am reading, I believe they flagged you because of the business expenses.. See, the IRS sets a certain acceptable range for every category.... For instance, if you have too much on your schedule A for certain deductions from AGI, self employment deductions, etc, you are guaranteed to be selected. \

I disagree with your statement that your tax preparer is not liable to you... While I cannot agree that they should be required to pay you damages, they should be prepared to defend your return to the IRS. However, since you are using what I call a "drive-thru franchise", these tax preparers are not licensed CPA's and thus create more problems.. Most of them utilize a tax program to put information in and spit out a completed return..
The IRS audits roughly 1 out of every 128 returns for no reason.. Keep in mind, once you are flagged for an audit, your future returns are scrutinized by the computer first and then by a human before being allowed to proceed through.

Your tax preparer company should be ready to defend you in this action, even if it goes to court....
By the way, not only you are responsible for the information placed on the form, so is the preparer (they can be sanctioned by the IRS and disallowed from doing future returns if not careful).. Remember, they have to fill out and sign below where you and your wife sign on the 1040...

If you like, e-mail me and we can work through it.. I am actually studying tax in great detail (for my CPA)... I already have my MBA in business, but just brushing up to get ready to sit for CPA... I have the backing of a tax professor who has over 20 years of experience in the field against the IRS..

Answer 2

Your tax preparer just takes the info you provide and inputs it into the equations. Yes, they do suggest to write this off or don't do this, but as far as them being liable for your audit.......NO.

IRS looks for certain things and you prob had something that just didn't look right. If you do everything by the books and you have a good accountant, you'll end up just fine. More of a hassle than anything.

My accountant gives us advice on some things.........if you are a business owner you HAVE to be the highest paid person or it looks suspicious. If you travel or meals expense is too high for the size of business you are, that may be catching the IRS's eyes......or possibly the mileage.

Good luck

Answer 3

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RE:
IRS audit... is my tax preparer liable?
We've used the same tax preparer for many years. Nothing fancy, one of the big name franchise's. Without any major deductions or audit flags we've been selected for an IRS audit. My wife and I are both W-2 workers and collectively earn just under $100K/yr, claim standard deductions...

Answer 4

There are some audits where selection is totally random - lucky you - and they go over every item on your return. For other audits, the letter you get tells you what area they are looking at - didn't yours say anything there? If not, sounds like you are having one of the totally random ones. Your tax preparer isn't liable for anything disallowed, you are. There are formulas to select returns for audits on particular areas, where for example deductions look out of line. But if your audit was one of those, the letter you got should have specified what area they want to see proof of. If they specified some particular area, take along proof of those items, but don't mention anything else on the return, stick to what they ask.

Don't panic by the way - getting audited doesn't mean you end up owing some huge amount. I got audited once, many years ago, and ended up getting $50 back.

Answer 5

Tax Preparer Liability

Answer 6

There are formulas, and where you live, what you do, your income and deduction levels are part of those forumulas. But some returns are just selected by random. So unless and until the IRS discovers wrongdoing, hard to see why they should be liable to you for anything.

I assume the biz expenses are unreimbursed business expenses / sked A. Otherwise, W-2 employees cannot deduct business expenses and that might be a red flag.

Answer 7

Your tax preparer is not liable, your tax preparer filed your return with the information you provided him.

Everyone eventually gets audited.

Relax, if you are lying on the tax return you shouldn't worry about anything. Surely you have good records of all your business expenses.

Answer 8

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While many preparers will stand by their work and cover any penalties that result from their errors, you along are liable for the payment of any tax, penalties, and interest.

Answer 9

The IRS trys to keep its "flags" secret, but there is a certain percentage randomly selected each year. The only obvious flags I'm aware of are self-employment and deductions that are way out of norm. Neither seems to apply to you.

Answer 10

Liability is yours and yours alone since you sign that final line. This is not to say a CPA would be useless. CPAs are good at what they do and take annual government sanctioned test to keep up to date with both money and business law. No matter the case a legal suite would easily be one if necessary.