cpa responsible for penalty and interest?

[mrbluejay]

What is the name of your state? california

My CPA forgot or otherwise did not file a 1099 reporting $33,000 in my 2007 personal income tax. I was notified by the IRS in March 2008 that I owe $8,042 in tax, $1608 in penalty and $777 in interest. He has agreed to pay the penalty but not interest for this error. I was never notified in his tax preparation statement or in any other way that I owed the IRS this money.

Should my CPA also cover the $777 in interest for this oversight?
Thanks for your response.

[Zigner]

Originally Posted by mrbluejay

What is the name of your state? california

My CPA forgot or otherwise did not file a 1099 reporting $33,000 in my 2007 personal income tax. I was notified by the IRS in March 2008 that I owe $8,042 in tax, $1608 in penalty and $777 in interest. He has agreed to pay the penalty but not interest for this error. I was never notified in his tax preparation statement or in any other way that I owed the IRS this money.

Should my CPA also cover the $777 in interest for this oversight?
Thanks for your response.

What does your written agreement with your CPA say?
IMO, the CPA should be responsible for the interest, as well as the penalty. I'm fairly confident that you would prevail in a Small Claims suit.

[irsos]

Originally Posted by Zigner

What does your written agreement with your CPA say?
IMO, the CPA should be responsible for the interest, as well as the penalty. I'm fairly confident that you would prevail in a Small Claims suit.

I respectfully disagree. It may be good for public relations, but the CPA is not legally nor morally responsibly for the interest - unless it was agreed to by contract. The client had the use of the money, not the CPA.

[Zigner]

Originally Posted by irsos

I respectfully disagree. It may be good for public relations, but the CPA is not legally nor morally responsibly for the interest - unless it was agreed to by contract. The client had the use of the money, not the CPA.

I understand where you're coming from and I, personally, would make sure that the CPA is responsible in a written contract. Is the CPA legally responsible? Probably. Morally, definitely. If it were not for the CPA's error, no interest would be due.

[irsos]

Originally Posted by Zigner

I understand where you're coming from and I, personally, would make sure that the CPA is responsible in a written contract. Is the CPA legally responsible? Probably. Morally, definitely. If it were not for the CPA's error, no interest would be due.

The client had the use of $8,042 for at least eleven months. Besides, we are only getting half the story and the question is poorly worded and subject to interpretation as to whether the CPA even knew about the 1099. Furthermore, the client has a responsibility to review the return. $33,000 is a lot to overlook - for the client too.

[Zigner]

Originally Posted by irsos

The client had the use of $8,042 for at least eleven months. Besides, we are only getting half the story and the question is poorly worded and subject to interpretation as to whether the CPA even knew about the 1099. Furthermore, the client has a responsibility to review the return. $33,000 is a lot to overlook - for the client too.

Fair enough...and I absolutely agree that the OP was a bit vague, which leads to questions as to WHY the information was missed.

[tranquility]

I agree with irsos, the CPA is only legally liable in malpractice for the penalty. If we make an error, we will pay the interest as well but are not required to. In the case of a missed 1099 for $33K, I also agree with irsos. Unless there were some extenuating circumstances where the client was not a 100%ter or had a very large and complex return, even if we were sure it was given us and we missed it we might not pay the interest. Mistakes happen and we are willing to pay for OUR mistakes. The client should pay for HIS.

[LdiJ]

Originally Posted by Zigner

Fair enough...and I absolutely agree that the OP was a bit vague, which leads to questions as to WHY the information was missed.

Just FYI, its industry practice that tax professionals will pay the penalty if they make a mistake, Some firms, like mine, will also pay the interest...Others will not. Its probably 50/50 on that, or maybe 60/40 for NOT paying the interest.

I agree that it was the taxpayer who had the use of the money, not the tax professional.

Also...the odds of a tax professional leaving off a 33,000 1099 is incredibly slim. Its far more likely that the client never gave it to the tax professional in the first place. Our overall firm, including branches does about 20,000 returns per year. During the off season our main office handles all IRS problems, for all branches. There are literally hundreds of clients who never bring us 1099s that they have received. Only once, in the last 4 years, has one of our professionals left one off the return that was given to us.

[tranquility]

So what you're saying, LdiJ, is that when a tax professional sees a 1099 he tends to report it on the return in some way?

Is this throughout the industry? I mean between the person who does the return and a second person to later reviews it in some way and, perhaps, a third person who assembles it, most of them know enough to report a $33K 1099 somewhere on that return?

Hmm..it almost makes me agree with Zinger and wonder why such a thing was missed.

[Snipes5]

If a preparer was given a 1099 with tax documents and intentionally left it off the return, that would be tax fraud, so naturally there is no reason a competent preparer would do such a thing.

I too would like to know how such a large sum was "missed".

Snipes

[irsos]

Originally Posted by Snipes5

If a preparer was given a 1099 with tax documents and intentionally left it off the return, that would be tax fraud, so naturally there is no reason a competent preparer would do such a thing.

I too would like to know how such a large sum was "missed".

Snipes

We ask self-employed clients to report total revenue. They often include 1099's with their information also. So if they reported $100,000 in revenue and had 1099's totalling less than that amount, it may not trigger an inquiry since that would be expected. If a client reported $100,000 in revenue and had a $33,000 1099 but did not include it in the total, then I tend to think the client was trying to understate income or it was a simple misunderstanding that could only be caught when the client reviewed the return or unless there was a significant variance from the previous year. Obviously if the 1099's are greater than self-reported revenue - then questions would be asked.

[Snipes5]

I always ask the question. I view it as due diligence on my part.

Snipes