Is a Tax Preparer Liable for a Mistake on My Tax Return?
Full Question:
Answer:
Ultimately, the tazxpayer is liable for the taxes owed, but in some cases may be able to reduce liabilityfor penaltiand fees. In limited situations, a taxpayer may be able to reduce or avoid penalties caused by a tax return preparer’s mistake. To avoid liability for a tax preparer’s mistake, a taxpayer must establish all of the following:
• That he provided the return preparer with complete and accurate information from
which the tax return could be properly prepared;
• That the incorrect return was the result of the preparer's mistakes;
• That the taxpayer in good faith relied on the advice of a competent return
preparer; and
• That he read and reviewed the return and made sure that all income items were
included.
The preparer is potentially subject to a penalty if any part of an understatement of what
the taxpayer owes is due to negligent or intentional disregard of rules or regulations by
the preparer or if the understatement is due to the preparer's attempt to willfully
understate the liability. An income tax return preparer can be fined $250 per return for
any understatement of liability if the income tax return preparer should have known the
position was unjustified and did not disclose it to the taxpayer. An income tax preparer is
subject to a $1,000 fine per return for willful or reckless disregard of rules that results in
an understatement of liability. Penalties imposed upon tax return preparers are $50 per
return for not furnishing a copy of the tax return to the taxpayer, not signing the tax
return, or not furnishing an identifying number. A taxpayer who has been assessed
penalties because a paid income tax preparer has made errors in the taxpayer’s return
might be able to bring an action against the tax return preparer to recover for such losses.
However, if the tax return preparer can show that the portion of underpayment of taxes
was reasonable and not the result of an intentional act, he may be relieved of liability for
the assessed penalties.
