Skip to main content

Can I go after my tax preparer (CPA) for damages?

Huntington Beach, CA |
Filed under: Tax law

To try and keep this as succint as possible:

1. Hired a firm to do my taxes (I WAS filing late).
2. CPA (or someone on his team) e-mailed me final returns, asked me to sign and return the signature page.
3. Printed these and sent to IRS.
4. IRS rejected returns due to both lack of original signature and missing attachments/statements; sent the returns back to me.
5. Asked the CPA what happened, said that they were aware of the original signature requirement, but the IRS does not normally enforce this rule.
6. Compared the returns sent back to the returns sent to me for signature - several pages/attachments were missing;i.e., for whatever reason, accidental or deliberate, they didn't send the entire return as I'd signed it.

Can I go after him for damages?

Attorney Answers 3

Posted

Facts indicate some gaps in a showing of exactly what happened.

1. Did you print the complete return? Did it have all the schedules? Did you put a cover letter with it stating what was in the package? Did you sign the signing page you sent in?

2. On the return at the bottom, did it say that it was prepared by someone? Did it have the preparers name and ptin?

3. Your #6 indicates that the IRS lost pages from the return; and that it was their error that the return was not complete. Thus, this would indicate this is the fault of the IRS. Did you save an EXACT COPY of what was sent?

4. SAVE your letter from the IRS rejecting your return. Did your original sending have a Fed Ex return receipt? Priority Mail Return Receipt? The IRS return to you may be the only proof that they received something.

5. There is a case of Hadley v. Baxendale on forseeability. If the original preparer did not know the criticality of the return, its very likely that he would not normally be liable for an extraneous remote 3rd party result.

Also, the "transcript" requirement of the third party, could the 3rd party have acted without it? why not? Just because its their policy doesn't mean that they can't make an exception especially where you show them a copy and filing proof that you sent your return in that year. So, a lot of the problem was partially due to the intransigence of the 3rd party.

6. Now, the interesting #5. Is this return from last year or this year? The method of doing this return disturbs me given the IRS push to get return preparers to file electronically. This year, preparers are expected to file electronically unless they ask permission for an exception. It may well be that the IRS isn't happy with this method of return preparation as return preparers are expected to do it electronically or explain why. To me, leaving it to the taxpayer to "turn in the return" is dangerous because many DO NOT save copies, or send by EXPRESS MAIL, or lose copies, etc. If I were a preparer and if I had my taxpayers mail in the returns I furnished them, I would be in some form of trouble, basically circumventing the IRS requirement to file electronically. Was there a request/reason attached to justify filing the paper return?

IF you have receipts, a copy of what was sent, you can try getting the IRS (especially with some proof that they received SOMETHING) to waive penalties. Probability will depend upon your showing of proof.

Consider the answer to all the questions raised above, as those answers will have an effect on the ultimate question you asked.

Good Luck.

Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.

Mark as helpful

1 found this helpful

13 lawyers agree

Posted

You can of course, but many people are not aware of what constitutes "damages" in this case. You can send in a new return, with all attachments, signed in blue ink and they will accept this as your first filed return as the first one was not accepted at all. Have your CPA print an identical return, and send it with an explanation of what happened. If there are late filing penalties assessed, you have a basis to go after the preparer for those. If you sent a check with your return, there should be no interest or late payment penalties as the IRS has already been paid, they just do not have a return to match it up with.

If you never sent a check, then those penalties kind of fall on you unless you provided the CPA with a check to pay the amount and they never sent it, but in absence of this, any reasonable person would wonder why they were not being asked to write a check to pay their taxes. So it sounds to me like the preparer might be liable to pay any late filing penalties that might have occurred. Just because the IRS "never enforces a rule" doesn't give a preparer the right to make that assumption without bearing the responsibility for not following the written rules that they are fully aware of.

Christopher Larson
www.insightlawfirm.com
www.insightlawfirm.wordpress.com

Mark as helpful

1 found this helpful

7 lawyers agree

6 comments

Asker

Posted

Christopher, Sorry, in reading your answer (and re-reading my question), realized I forgot to describe the "damages" in more detail. As a result of the returns not being filed properly, my mortgage lender was unable to retrieve a copy of tax transcripts from the IRS, and suspended approval of my loan. Seller is only willing to extend escrow if I pay carrying costs of about $2,500/month, and the timeframe to process paper returns can run 6-8 weeks or longer. Lender's statement to me was very explicit and in writing: we cannot approve this loan because your tax transcripts are unavailable. The CPA sent the bank a statement acknowledging that the returns were initially rejected because he or his firm made a mistake in filing them.

Asker

Posted

Christopher, Sorry, in reading your answer (and re-reading my question), realized I forgot to describe the "damages" in more detail. As a result of the returns not being filed properly, my mortgage lender was unable to retrieve a copy of tax transcripts from the IRS, and suspended approval of my loan. Seller is only willing to extend escrow if I pay carrying costs of about $2,500/month, and the timeframe to process paper returns can run 6-8 weeks or longer. Lender's statement to me was very explicit and in writing: we cannot approve this loan because your tax transcripts are unavailable. The CPA sent the bank a statement acknowledging that the returns were initially rejected because he or his firm made a mistake in filing them.

Asker

Posted

Christopher, Sorry, in reading your answer (and re-reading my question), realized I forgot to describe the "damages" in more detail. As a result of the returns not being filed properly, my mortgage lender was unable to retrieve a copy of tax transcripts from the IRS, and suspended approval of my loan. Seller is only willing to extend escrow if I pay carrying costs of about $2,500/month, and the timeframe to process paper returns can run 6-8 weeks or longer. Lender's statement to me was very explicit and in writing: we cannot approve this loan because your tax transcripts are unavailable. The CPA sent the bank a statement acknowledging that the returns were initially rejected because he or his firm made a mistake in filing them.

Asker

Posted

Christopher, Sorry, in reading your answer (and re-reading my question), realized I forgot to describe the "damages" in more detail. As a result of the returns not being filed properly, my mortgage lender was unable to retrieve a copy of tax transcripts from the IRS, and suspended approval of my loan. Seller is only willing to extend escrow if I pay carrying costs of about $2,500/month, and the timeframe to process paper returns can run 6-8 weeks or longer. Lender's statement to me was very explicit and in writing: we cannot approve this loan because your tax transcripts are unavailable. The CPA sent the bank a statement acknowledging that the returns were initially rejected because he or his firm made a mistake in filing them.

Asker

Posted

Christopher, Sorry, in reading your answer (and re-reading my question), realized I forgot to describe the "damages" in more detail. As a result of the returns not being filed properly, my mortgage lender was unable to retrieve a copy of tax transcripts from the IRS, and suspended approval of my loan. Seller is only willing to extend escrow if I pay carrying costs of about $2,500/month, and the timeframe to process paper returns can run 6-8 weeks or longer. Lender's statement to me was very explicit and in writing: we cannot approve this loan because your tax transcripts are unavailable. The CPA sent the bank a statement acknowledging that the returns were initially rejected because he or his firm made a mistake in filing them.

Christopher Michael Larson

Christopher Michael Larson

Posted

Yes. These are very real damages that one could say were caused by the preparer. That is the key. Your situation is very real, but many people think it will get them out of paying taxes, like a "mistake bonus." But that is clearly not your case. Christopher Larson www.insightlawfirm.com www.insightlawfirm.wordpress.com

Posted

Yes, you can always go after the preparer for damages. The question is what exactly are your damages? The tax you owe from the return is not an element of damages since you would have owed this anyway. Interest is also not usually an element of damages since you could invest your money not paid for the taxes. The typical element of damages in these cases is any penalties assessed and preparation and professional fees.

Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.

Mark as helpful

4 lawyers agree