Accountants are human and make mistakes just like the rest of us. The bad news is that when they do, it can cost you. Depending on the nature of the mistake, there can be legal and financial repercussions, and you could end up paying for an error that wasn’t your fault.
The good news is that there are ways to protect yourself from the potential financial and legal fallout of an accountant’s mistake.
What Happens If Your Accountant Makes a Mistake?
Generally, there are three main reasons an accountant would make a mistake. The first is that they made an error in judgment. The second is that they didn’t have enough information to complete the task correctly. And the third is that they didn’t have adequate training or experience to complete the task correctly.
Hiring a good accountant is not just about getting the job done—it’s also about getting it done correctly. Unfortunately, if your accountant makes a mistake, you still have to pay the penalties.
What to Do If You Find a Mistake From Your Accountant?
Accounting mistakes can come in many forms: incorrect tax deductions or credits, miscalculating estimated tax payments, and even failing to report income. If an accountant screws up on your taxes, what do you do?
If your accountant makes a mistake, it’s essential to know how to handle it without wasting time. Here are the steps to take if you find yourself in this situation:
1. Confirm the Accountant Made the Mistake
If you suspect your accountant has made a mistake, it’s crucial to get the facts straight. Before you accuse them of anything, make sure your accountant is at fault.
If your accountant caused the mistake, you need to contact them. You should do this immediately, as soon as you realize there’s a mistake.
2. Contact the Accountant
Most accountants are ethical and strive to do the best they can for their clients. However, mistakes do happen.
If it is their fault, ask them to rectify the situation and provide you with an explanation of what happened. Keep all communication between yourself and your accountant professional, so there’s no room for misunderstandings.
If you’re unhappy with how the account handles things, don’t hesitate to speak up and ask questions until you understand what’s going on completely.
If you’re worried about your accountant’s competence, you should discuss your concerns with the firm’s managing partner or another senior staff member. If they fail to address your concerns satisfactorily, consider finding another accountant.
3. Review Your Contract Rights
Take the time to read through your contract with them. It should outline the terms of their relationship with you, including their insurance policy.
If they did make an error and you didn’t catch it during tax season, they may offer to pay interest and penalties on money owed but never any tax itself.
On the other hand, if you spotted the error before filing or during the audit-preparation time, the insurance policy may cover any fees associated with correcting these mistakes.
It’s worth noting that some may not include taxes in their policies.
Review your options carefully before deciding on a course of action. You may be able to resolve the problem by agreeing on a compromise.
4. Pay the Penalties
Regardless of whether or not it’s your fault, you must pay the penalties to avoid further problems. Even if the IRS finds that your accountant made an error, you will still be liable for any accrued penalties.
You’re liable for these penalties rather than the accountant because the IRS asks you to sign every tax filing document confirming that everything is accurate to the best of your knowledge before filing. That document makes you liable for everything in the tax document, including your accountant’s error.
If you don’t pay the penalties, it will be more costly. The IRS can collect your assets or take them to pay the interest on the unpaid penalties. They can also charge interest on those unpaid penalties.
You can also ask for relief from paying penalties associated with filing an incorrect return or failing to file one altogether if the IRS deems you eligible for requesting penalty relief.
5. Explore Your Options
You may have time to correct the error and avoid any penalties, depending on the statute of limitations and the nature of the error.
For example, individual tax filers have three years from the filing date of the original return or two years from the tax payment to notify the IRS of the error on Form 1040X, Amended U.S. Individual Income Tax Return.
If you discover an error after filing an amended return and before the IRS accepts it, you’ll need to file another amended return with any necessary changes to reflect those changes. Once again, follow all the instructions for correcting the form and follow up with the IRS by contacting them directly regarding any questions about proceeding with your amended return.
When filing an amended return, remember that there is no statute of limitations for filing an incorrect return or failing to file one.
6. Notify the IRS and the Appropriate Parties
If you are concerned that your accountant may have made a mistake, you must notify the IRS as soon as possible. It also helps to avoid fraud charges, criminal charges, a tax audit, or a tax lien. The longer it takes for you to notify them, the more difficult it will be for them to investigate and correct any errors.
Consider contacting other appropriate organizations, such as the Better Business Bureau or the state licensing board, to file any complaints.
Is an Accountant Liable for Mistakes?
The IRS assesses the penalties against you, not your accountant. The accountant is not required to pay the penalties. You are responsible for your taxes and for paying any penalties resulting from errors made on your returns.
The IRS will send a notice to you, and your responsibility is to pay the penalty or appeal it within 30 days. The penalty includes negligence in preparing or filing tax returns and intentional acts such as falsifying information or claiming deductions without support.
Can You Sue Your Accountant for Mistakes?
Many people ask if they can sue their accountant for making a mistake. The answer is yes, but only in certain circ*mstances. You have to prove that your accountant made a mistake maliciously or recklessly. If your case meets the legal criteria, you may be able to sue your accountant.
Need Accounting Help? Give Us a Call
Trust is a big part of being able to work with an accountant. You should be able to trust the advice they give you, and they should be able to explain things in a way that makes sense to you. An accountant doing something wrong or providing bad advice can put both of you in serious trouble.
If you have any doubts about the work your accountant is doing for you, call the experts at MI Tax CPA. We’re a dedicated firm with many clients who trust us to help them with their accounting needs.
