Help! I’m Being Held Responsible for Errors Made by a Tax Professional
May 9, 2024
For many taxpayers and small business owners, the idea of being audited by the Internal Revenue Service (IRS) can be anxiety-inducing. But what happens when you find yourself facing an audit due to errors made by your tax professional? What happens when that guide leads you astray? What action can you take?
In this comprehensive guide, the Law Office of Scott N. Tisevich provides practical solutions to help safeguard your financial future. Whether you’re grappling with the aftermath of an erroneous tax filing or seeking preventive measures, the following will equip you with the knowledge and tools necessary to traverse this critical aspect of tax compliance.
If you're dealing with penalties due to a tax professional's mistake, contact Scott N. Tisevich as soon as you can. He serves clients throughout Churchill County, Lyon County, Carson City, Story County, Douglas County, and Las Vegas.
Understanding Tax Professional Errors
The field of tax consultancy is deep and varied, and as such, the potential for mistakes is vast. From missed deductions to miscalculated liabilities, errors can occur at any stage of tax preparation, whether at a local tax service or a national accounting firm. The implications can be far wider than merely messing up numbers on a form.
Examples of Common Mistakes
Underreporting Income: This occurs when a tax professional accidentally omits or neglects to include all sources of income on the tax return, potentially leading to an audit and penalties.
Overstating Deductions or Credits: Some tax preparers might overly aggressively claim deductions or tax credits that the taxpayer is not entitled to, which can raise red flags with the IRS.
Failing to File Required Forms: Certain situations require specific forms (e.g., for foreign income or large gifts), and failure to file these can result in fines and legal complications.
Errors in Classifying Workers: Misclassifying employees as independent contractors (or vice versa) can lead to significant payroll tax issues and penalties.
The Impact of Tax Errors
The immediate consequence of a tax professional error is a discrepancy in your tax filings. This can lead to various repercussions, the most severe being the increased scrutiny from the IRS. The ripple effect of this can be daunting, with the IRS having the authority to impose punitive measures.
Tax errors can escalate to audits, during which the IRS thoroughly reviews your records to verify accuracy. Audits can be time-consuming, stressful, and costly, especially if they result in additional taxes owed, including interest and penalties.
The fallout from these situations isn't just financial; it can also tarnish one's reputation, particularly for business owners who rely on public trust. The good news is that there are experienced tax attorneys out there who know how to advocate for you, no matter what errors or penalties you're facing.
Civil Penalties
Civil penalties are one of the primary repercussions for errors in your tax filings, and they can vary significantly in severity depending on the nature of the mistake. These penalties range from fines for minor inaccuracies to more substantial penalties for actions deemed as fraud or gross negligence.
It's crucial to understand that while the tax professional might have made the error, the responsibility for the accuracy of your tax return ultimately falls on you, the taxpayer. This means that regardless of the origin of the mistake, you may be liable for any resulting penalties and additional taxes, making it imperative to choose a reliable and competent tax professional to manage your filings.
Criminal Charges
While stressful, facing potential criminal charges due to tax professional errors is a severe but less common outcome. These charges usually arise from allegations of tax evasion or fraud, deemed as intentional efforts to avoid paying taxes.
Although these instances are rarer and often involve more than simple mistakes or negligence, the possibility underscores the importance of rectifying inaccuracies promptly. Taxpayers caught in such situations should seek legal counsel immediately to discuss their options for defense and mitigate potential repercussions.
Liability for Additional Taxes
Finding out you owe extra taxes because of mistakes your tax pro made can be unexpected and tough to deal with.
Basically, the IRS figures out the extra taxes you owe based on the difference between what you reported and what you should've reported. Owing additional taxes might also mean paying interest on those taxes from when you first should have paid them up until you do.
If the mistake seems intentional or comes from a big oversight, you might even face some hefty fines. For anyone in this boat, it's not just about sorting out the money part. It's also a good idea to think about getting a new tax advisor and double-checking your tax returns before you send them off next time, just to avoid any similar problems down the road.
Understanding the Resolution Process
Engaging with the IRS might seem daunting, but it's a necessary step in resolving any tax errors and discrepancies.
The process starts with acknowledging the mistake, which can often be rectified by filing an amended return. An amended return, using Form 1040-X for individuals, allows you to correct errors on a previously filed tax return. It's essential to provide a clear explanation of what was wrong and the correct information, supporting it with any necessary documentation.
If the IRS has already contacted you regarding discrepancies, responding promptly and accurately is crucial. Provide all the requested information and consider seeking professional assistance to ensure your response is comprehensive and precise.
For taxpayers disagreeing with the IRS findings, the agency offers an appeals process. This process is an opportunity to discuss your case with a different IRS representative, potentially resolving the issue without needing to go to court. It's advisable to prepare thoroughly for the appeals process, gathering all the relevant documents and possibly enlisting the help of a tax professional or attorney.
In scenarios where the taxpayer is unable to pay the full amount of taxes owed, an Offer in Compromise (OIC) might be a viable solution. An OIC allows you to settle your tax liability for less than the full amount owed if you can prove that paying the full amount would cause financial hardship. This process requires a detailed submission, including financial disclosures, and is subject to strict eligibility criteria.
Navigating IRS procedures can be complex, but taking measured, informed steps with a trusted lawyer by your side can lead to a successful resolution of tax issues.
Legal Rights & Options for Taxpayers
Taxpayers are not powerless in the face of a tax professional's mistakes. Knowing your rights and the avenues available to protect them is crucial for emerging from such situations unscathed.
Taxpayer Rights
Understanding what you are entitled to as a taxpayer is the first line of defense.
Every taxpayer has the right to receive quality service from a tax professional, and if not satisfied, to seek alternatives. This right extends to accurate and timely preparation of tax returns and a thorough explanation of the entire process.
Additionally, taxpayers have the right to privacy and protection of their personal and financial information. Any disclosures or sharing of such information must be authorized by the taxpayer or as required by law.
Finally, the right to a fair and just tax system encompasses the IRS’s obligation to consider all facts and circumstances that might affect underlying liabilities, the ability to pay, or the ability to provide information timely.
Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.
Defending Against Professional Negligence: Filing a Malpractice Lawsuit
When considering taking legal action against a tax preparer for professional negligence, it's crucial to understand the legal grounds for malpractice. Essentially, a taxpayer must prove that the tax professional breached their duty of care in accurately preparing and filing tax returns, leading to financial harm or penalty.
This involves demonstrating that the errors made were due to negligence or incompetence and that these errors directly resulted in a financial loss, such as owing additional taxes or penalties. Seeking damages through a malpractice lawsuit can be a complex process, requiring clear evidence of the preparer's failure to meet the professional standards expected in tax preparation.
If this sounds like your situation, consult with an experienced tax attorney who specializes in tax law to evaluate the strength of your case and guide you through the legal proceedings.
Audit Defense Strategies
Facing an audit can be intimidating, especially when it stems from errors made by your tax professional. Preparing for this is crucial to protect your interests and make sure the process is as smooth as possible.
When going through an audit, several defense strategies can be instrumental for mitigating negative outcomes and protecting your financial interests:
Gather Comprehensive Documentation: Compile all relevant records, receipts, and documents that support your tax filings. The more evidence you have, the better you can substantiate your tax positions.
Understand the Scope of the Audit: Clarify what the IRS is questioning. This will help you prepare the exact documents and answers needed to address their concerns.
Stay Organized: Present your information in a clear, organized manner. This will make the process smoother and demonstrate your commitment to resolving the issue.
Know Your Rights: Familiarize yourself with your rights as a taxpayer. Understanding what the IRS can and cannot do can provide peace of mind and protect you from potential overreach.
Consider Professional Representation: A tax attorney can offer valuable advice, represent you in discussions with the IRS, and ensure your rights are protected throughout the audit process.
It's often beneficial to contact a tax attorney who can guide you through the audit defense process and offer expertise and advocacy to potentially reduce liabilities and penalties.
Seek Professional Help
At the end of the day, the decision to get legal help should come down to how it’ll affect your financial health and peace of mind. It’s all about making sure you’re ready to tackle any tax challenge that comes your way.
Scott N. Tisevich has extensive experience representing clients facing all types of tax issues. His firm provides personalized attention and aggressive representation to help you navigate audits, appeals, and other legal processes related to your taxes. Contact his firm in Reno, Nevada, today for a consultation and take control of your tax situation.