Are Tax Preparers Liable for Mistakes They Make When Filing My Taxes?

It is tax time again, and many of us are scrambling to finish our returns and get them filed with the IRS. Whether it is due to a lack of knowledge or time, many of us have become accustomed to hiring someone to prepare our taxes for us. While this is can prove to be very efficient for those individuals who choose to utilize this service, taxpayers need to be aware of the reality that tax professionals are capable of making mistakes, whether intentionally or by accident. These mistakes can prove to be very costly as the IRS is quick to assess penalties and attach interest for fraudulent returns. And in the end, it is the taxpayer who is placed at the mercy of the IRS and a potential audit. Therefore, it is important for individuals to know what options are available to them should they find themselves in this situation.

Some common mistakes that tend to arise when a tax professional is hired to prepare an individual’s return are the understatement of the individual’s income, or the overstatement of the deductions available to the taxpayer. These mistakes may be caused by any number of different sources; however, courts have determined that preparers should exercise the same degree of care that would be employed by a prudent member of their profession. So, if the information provided to a tax preparer appears incorrect or questionable, they have a duty to seek out any additional information needed to ascertain the truth. There are also instances in which a tax preparer includes fraudulent information on an individual’s return in order to obtain a larger refund for the taxpayer, in hopes of securing that person’s business the following year. If the preparer fails to take the additional steps required, or if they make a blatantly fraudulent addition or subtraction to a taxpayer’s return, they may be held liable for their action. In order for liability to attach, it must be shown that the mistake made by the preparer was done so knowingly or if it was due to reckless conduct. While it may be difficult to actually prove that the preparer had direct knowledge of the mistake they were making or that they had the intention of doing so, these factors can be inferred from their actions.

Generally speaking, if a tax preparer is found to have knowingly or recklessly included false information on an individual’s return, they may be found liable to the taxpayer for all fees associated with that mistake; this would include any interest and/or penalties assessed by the IRS, as well as any accountant and/or attorney fees that the taxpayer may have absorbed in an attempt to settle this situation. If it can be shown that the preparer’s actions were malicious or intended to cause injury to the taxpayer, then additional damages may be awarded. These damages can include payment for emotional distress that results from a tax audit.

It is important for taxpayers to know that large corporations that provide tax preparation services typically have policies in place that deal with these types of situations. Generally, it is common practice for these corporations to agree to pay any attorney fees and penalties and interest that result from mistakes made by their employees. They do this in hopes of avoiding any negative publicity that may result from a pending lawsuit. However, there is always the possibility that these companies may deny any liability. If you have hired a tax professional to preparer your return and a subsequent audit uncovers mistakes, you should be sure to contact an attorney to learn what your rights are and what options are available to you.

THIS ARTICLE CONTAINS GENERAL INFORMATION AND DOES NOT CONSTITUTE LEGAL ADVICE.