It takes a great deal of professionalism for your tax expert to prepare your tax returns accurately and without mistakes. When errors occur, however, this might get you wondering how they can affect you as a taxpayer and the steps you ought to take to remedy them. You can avoid serious IRS penalties and fines by following these tips to handle tax preparer errors.
- Evaluate Your Tax Return before Signing It
The general way to prevent tax preparer mistakes from occurring is to carefully read your tax return before you sign it. Tax returns include a statement at the end that highlight that the taxpayer agrees that all of the information on the return is accurate and factual.
If you sign the return before evaluating it completely, you may find it more difficult to defend yourself of that end statement. In fact, it obligates you to read through the return and check it for mistakes that could cost you a large amount of extra taxes or IRS fines and penalties later.
If you do notice errors on your tax return, you should point them out right away to the tax preparer. You have every right as a client to require the tax preparer to either clarify or fix the errors before you sign the return.
- Ensure the Errors are Truly the Fault of the Tax Preparer
Another tip for dealing with errors on your tax return involves ensuring the tax preparer truly is to blame for them. You shouldn’t have any fault from your end. After all, you have the duty of providing all of the documentation and evidence of income and assets to the tax preparer. He or she cannot easily take a guess at how much you earn and to what exclusions or deductions you are entitled.
If you cannot provide the needed information to prepare a correct and factual tax return, the tax preparer cannot be faulted for the errors. In this instance, the blame will fall on you for not providing everything the tax preparer needed to do your taxes accurately.
- Contact the Tax Preparer in Person
If you find errors on your tax return, you should get in touch with the tax preparer as quickly as possible. If possible, you should meet with this individual in person to review the return and point out the errors. In some cases, the preparer may be able to make the necessary corrections or submit an amended return for you.
Likewise, depending on your situation, the tax preparer may be willing if not obligated to pay for your IRS fees, penalties, and interest accrued on your tax debt. The tax preparer may not gain your full reliance. However, he or she may be able to resolve the situation before it costs you anymore money with the IRS.
- Know Your Rights as a Client
Before signing a contract with the tax preparer, you should read through the agreement thoroughly and understand your rights as a client. In particular, the contract should clearly state what solutions the preparer can grant to you if or when he or she makes an error preparing your return.
In some cases, the preparer may be obligated to pay the interest and penalties you accrued as a result of the errors but not the extra taxes you owe to the IRS. In other scenarios, you may have the chance to purchase extra insurance on your return that obligates the preparer to pay for the interest and penalties as well as the extra taxes you owe due to his or her errors.
You should take note, however, that this obligation will not be upheld if it is identified that you caused the preparer to make errors on the return. If you deliberately or accidentally withheld information about your income, assets, or other taxpayer details, the preparer will not have to conceal expenses related to the errors.
Know the Statute of Limitations
If an error is made by your tax preparer when preparing your return, you have a limited amount of time to act in order to solve the situation. In most instances, the statute of limitations is three years for errors that caused you to pay too much to the IRS. To solve this problem, you bear the burden of providing evidence that you overpaid and are owed a refund on that money.
If the mistakes caused you to underpay the IRS, you could face collection efforts on the remaining balance for three years from the time of the error. The IRS has three years from that date to collect the money you owe to the federal government. However, if the error is significant such as leaving out or not reporting 25 percent of your income, the IRS has up to six years to collect on that debt from you.
By the way, no statute of limitations applies to situations like fraud or evasion. If you do not file your taxes, deliberately defraud the IRS, or withhold information from it on purpose, the IRS has an unlimited amount of time to pursue and collect money from you.
Pay the Penalties
In spite of the mistakes your tax preparer made, it is up to you to pay what you owe to the IRS at the end of the day. You bear the responsibility of paying penalties and interest, not the tax preparer.
If you fail to pay this money, even with the preparer’s errors, the IRS will come after you and not the tax professional for this debt. After you pay the penalties, you can then follow up reimbursement from your tax preparer.
Notify the IRS and Other Organizations
You also have the choice of notifying the IRS and tax professional organizations about your tax preparer’s errors. Particularly, you should notify the IRS if your tax preparer:
- Behaves unethically
- Violates the term of your contract or engagement letter
- Deliberately avoids contact with you
- Refuses to reimburse you for penalties, fines, and other money he or she owes you
You also can notify professional organizations such as the American Institute of Certified Public Accountants, the American Bar Association, and the National Association of Enrolled Agents about your preparer’s misconduct.