Q&A: Will Your CPA Stand Behind the Work Performed on Your Behalf?

Would they pay your penalties and interest caused by their mistake?

Question: I’ve trusted and respected your advice for more than 15 years, but you didn’t do your homework before saying that tax preparers should pay any interest and penalties due the IRS when there are errors in the return. Why should the owner of the 1040 reap the same benefit twice? He or she has been earning interest on money owed to the IRS while it has been sitting in the investment account. In addition you say the preparer should cover the interest the IRS assesses. That’s double-dipping. My CPA says the preparer should cover penalties only. I’m shocked and dismayed that someone of your caliber would make an error like this.

Ric: You should get a new CPA.

In my experience it is difficult to tell a client that he or she must pay interest to the IRS due to the CPA’s mistake, even if the client may have earned some interest on a tax payment that should have been made but wasn’t. In addition, it may be difficult to determine whether the client earned any interest on those funds; for example, maybe the money was held in a non-interest-bearing checking account.

The majority of court cases have held that the taxpayer is due interest to the extent that he or she has suffered actual damages from the interest charged, while other cases have concluded the opposite, using the logic your CPA suggested. Still other cases have concluded that the taxpayer should get some interest back (to make the taxpayer whole).

As a business owner, I would pay all the costs my client incurred, out of goodwill; I believe a tax preparer who refuses the client’s request for reimbursement is likely to lose the client (and deservedly so, in my opinion).

My view is that a professional who makes a mistake that causes the client to lose money should reimburse the client — period. That’s the way we handle errors in our firm — and I’d hope that all professionals would behave the same way. (By the way, if the professional fears that the losses might be huge, well, that’s what professional errors and omissions liability insurance is for.)

Final point: It often takes the IRS two years or more to discover that tax returns contain errors. Therefore, you need a reasonable degree of confidence that your preparer will still be in business two or three years from now so he or she is around to be held accountable. If your preparer is a sole practitioner and you suspect that he or she might soon retire, you might want to change preparers now. Or ask your preparer whether he or she plans to sell the practice; if so, get the successor to agree in writing that he or she will be responsible for errors made by the departing preparer.

Again, you should get a new CPA, one who is willing to stand completely — not just partially — behind the work he or she performs for you.


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