tax preparation responsibilites

[bigair]

What is the name of your state (only U.S. law)? CA

I had a private accountant prepare my tax return a few years ago. I just got a letter from the IRS indicating that I own a ton of money, plus taxes (penalty).

Looking into the issue I learned that my accountant made the reporting mistake. Of course I signed off trusting that my return was correct.

What recourse do I have with my accountant? I did sign a contract that states I have final responsibility for the return and I did sign off on the return.

[Zigner]

Originally Posted by bigair

What is the name of your state (only U.S. law)? CA

I had a private accountant prepare my tax return a few years ago. I just got a letter from the IRS indicating that I own a ton of money, plus taxes (penalty).

Looking into the issue I learned that my accountant made the reporting mistake. Of course I signed off trusting that my return was correct.

What recourse do I have with my accountant? I did sign a contract that states I have final responsibility for the return and I did sign off on the return.

You will owe the taxes.

Whether you can expect reimbursement for the penalties and interest would depend on the actual wording of your contract with the accountant.

Personally, I think you CAN expect to have the penalties reimbursed. I also think it's fair to ask that the interest be reimbursed...but that's not a unanimous opinion on this forum.

[tranquility]

Even with the signed retainer letter, most will look at the actual facts behind the error. In court, the most you will get on malpractice suit against preparer (absent actual fraud or whatnot) is the penalties and the interest on the penalties. So, even if it is the preparer's fault completely, that's what you'd get in court. (Some theoretical issues as to "damages", but I don't see them winning in the numerous cases on the matter I see.) However, if it is entirely the preparer's fault, many would give you the penalties and interest. For large differences, maybe not as the taxpayer has a responsibility too. A large error in a number really cannot be caught in a review by anyone but the taxpayer without substantially raising the cost of tax preparation.

The facts matter. What happened? What were the numbers involved?

[bigair]

The preparer overrepresented the taxes withheld and I got a huge return. Then the IRS realized this and asked for the $ back after I spent it.

Taxes withheld from my employee stock option exersize were included on my W2, along with taxes held from my base compensation. The 1099 for the stock broker showed zero withheld from the exersize. It seems the preparer didn't realize this method of companies accounting for stock options. They looked at my stock trade confirmation (which included the tax withheld breakouts) and added those withholdings to the figure from my W2 .. so double counting.