My tax accountant mis-filed my taxes a couple years ago, which cost me about $20K (which I learned after I switched to another accountant later). Don't know if Claude / GPT would make the same mistake or not given SOTA today, but feels like there's an opportunity for models to be saving me thousands or tens of thousands of dollars a year.
>mis-filed my taxes a couple years ago, which cost me about $20K
What do you mean by "cost you $20K"? That your tax liability was calculated by the accountant to be higher than it actually should have been? Or that the accountant calculated your liability too low, which was caught and billed by the IRS?
In the first case, you can still file for a refund within 3 years (I'm omitting some technical details), but in the latter case, as mentioned by others, you still owe the tax whether it was correctly reported on your original return or not.
Years ago I had a similar issue. Accountant did something incorrect, increasing my liability by around $50k. Tax date came so I paid it, but moved accountants. New person fixed the issues, refiled, but it took a long time to get the refund back. IIRC, the IRS did include some nominal interest for the time they had the money.
Someone still needs to take liability for mistakes.
The real issue is that accountant most likely has a track record of those kinds of mistakes - but you have no info on other clients. So you weren’t as informed at the time you chose them vs the new one.
yeah i think liability ultimately lies on the individual. of course, you could sue your accountant, but that feels hard, maybe almost as hard as suing the model providers.
At least in Poland it is not viable. Friend's business lost noticeable amount of money because accountant has not filed taxes and lied that they filed and lied that they checked it.
And there was no real path to recovering funds, except small part, after long court case.
At least they were able to fire them without severance pay.
This seems to be usual. Accountants are liable for crimes like embezzlement, but tax authorities hold individual tax payers responsible. If tax payers want to recover losses they have to go to court, which is often risky because accountants will say the client didn't do A, B, and C.
The IRS made it crystal clear to me long ago. The tax filer is responsible for everything on the tax return, regardless of the preparer. Of course, accountants can be liable in other ways, but the filer has to pay the fines if the accountant makes a mistake.
From the IRS' point of view, the tax-payer is responsible for paying all of it. You can then turn around and sue to recover any of the fees/fines or penalties incurred as a result of an error made by the accountant, not the actual taxes though.
People misunderstand the concept of liability. Yes your tax professional is liabile for fraud or gross misconduct, but if they make a mistake which results in unpaid taxes or fees you're still the one on the hook.
Typically you are on the hook for paying the actual taxes and penalties, but if you acted in good faith on the negligent advice of a tax professional many jurisdictions allow you to recover the costs of penalties and interest accrued as a result of the negligent advice.
I'm also 0 for 4 on tax preparers / tax accountants, so I concur with you its best to just do it yourself, which is what I now do. Only time I ever got audited (and failed) was when I had employed an accountant, since then I've never had a problem including passing audits. The tax code isn't /that/ complicated for most people's situation, and it's well worth understanding it.
I'm 1 for 6. And my current firm is overworked. I'm moving to do it myself (three companies, fund admin and personal). Recently Found a Tax-Accountant, not a CPA, who does advice only, no paperwork, who I'm using to cross-check my AI tools.
I am a CPA with 20+ years of experience and I feel like I need to defend our industry here.
There is no such thing as "failing" an IRS audit. You either under reported income, overstated deductible expenses, or your "accountant" changed the numbers you provided and committed fraud, which would have resulted in immediate legal proceedings by the IRS against the preparer. So did you "fail" because your preparer committed federal tax fraud or did you underreport your income?
The statement that the one time you used an accountant you got audited implies that you are confusing causation with correlation.
There are about 6 ways that the IRS selects returns for audit but only 3 are actually relevant here.
- Information Matching (ie. if your W2 does not match the W2 submitted by your employer). This mostly used for your basic W2, 1099DIV, etc. kind of taxpayer and is usually just a letter from the IRS telling you your numbers are wrong and you need to amend your return.
- If they are examining a related return (ie. you own a business and another partner in that business is being audited)
- Computer scoring which breaks down into the Discriminant Function System (DIF), basically, how does your return compare to similar returns, and Unreported Income DIF, what is the potential that your return underreported income. This is what is commonly used for businesses and self employed individuals' Schedule C. Basically, when you prepare a business return (1040 Sch. C, 1041, 1065, 1120, 1120S, or 990) you have to report your business industry's NAICS code, and provide a single line explanation what your business does. Using this and the return data, the IRS is able to score a return on the likelihood that profit is understated by comparing a businesses income and expenses to the norm for a similarly sized businesses in that industry. High scoring returns are then reviewed by IRS personnel.
One of those three things happened to you and none of them are the fault of a preparer that is using accurate information provided by the taxpayer.
Finally, you keep saying things like "accountant". You disparaging an entire industry without saying what type of tax preparer you used. Was it a CPA, licensed by a state with experience in tax? An Enrolled Agent, licensed by the IRS directly? Or a tax preparer, an unlicensed person preparing your return either on their own or through something like HR Block or Turbotax? Because if you used an unlicensed tax preparer and are blaming licensed individuals that is like hiring an unlicensed electricians and then when your house burns down from an electrical fire, turning around and saying all electricians are bad
