But I hired a tax professional...
Updated: Sep 23, 2020
Many people know that they don't know enough to feel comfortable preparing their own taxes. However, many of them also don't want to pay a few hundred dollars to get it done so they look for the cheapest option. Unfortunately, the qualifications to be a tax preparer are very low. These factors lead people to hire unqualified, and sometimes even dishonest, tax preparers.
I occasionally have new clients bring in a prior return with questionable deductions. Once I ask them about the deductions it becomes clear that the tax preparer likely made these up. I assume the preparer did this in order to get a 'maximum refund' to make the client happy.
In this case, the preparer clearly acted fraudulently and committed a crime. A much more common situation is when the preparer simply wasn't qualified and made a mistake. Do either of these situations relieve the taxpayer's responsibility for the taxes owed (plus penalties and interest)? The short answer is no.
When you hire a tax preparer, you are still responsible for the tax return. As soon as you sign it, you are stating that you believe it is true and accurate. The preparer can be held responsible for their fraud and/or errors (you can report an abusive tax preparer to the IRS), but that will not relieve you of your responsibilities.
It might be possible to get out of the penalties, but that is not guaranteed. Interest typically cannot be removed, however if some of the penalties are removed the portion of the interest on the penalties would be as well. The taxes themselves (and the interest on them) will almost always still be your responsibility. You could of course sue the preparer, but that involves attorneys, legal fees, and the headache that comes with it. Of course, if the amount of money is significant, this could be worth it.
Here are a few steps to take to avoid this problem.
Review the IRS top ten tips to choose a tax preparer (some of these are included here).
Check the preparers qualifications and hire one who is subject to a regulatory body with high professional and ethical standards that can be enforced. For example, a Certified Public Accountant (CPA).
Check reviews through google or some other source.
Make sure the preparer is available. If the preparer is dismissive, or won't go through the return with you, you should find a new preparer.
Never sign a blank return. I don't think many people would do this, but it does happen.
Review the return carefully. Skipping this step is perhaps why number #5 might happen. Review the return. Ask about any number you don't understand. Make the preparer explain it to you. If it appears a number came from a schedule that is missing, ask about it. Do not sign the return until you are comfortable with what is in it.
Verify the preparer signs. There is a spot where the preparer puts their name, address, and PTIN (preparer tax id number). Paid preparers are required to sign returns.
Ask about fees. Avoid preparers who base their fee on your refund (as a percentage of the refund, or guaranteeing a refund, etc.). Tax returns are basic math problems, if the preparer says they can get a larger refund than other preparers, be very cautious.
Verify your bank account for the refund. Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer’s bank account. Your bank account info is listed on the return if you want direct deposit. If you want a paper check, verify your address is correct and the bank information section is clear.
Read more about me. I enjoy helping individuals with their taxes, businesses (including nonprofits and churches) with tax or accounting and other finance related questions, and I also enjoy helping people resolve tax debt, liens, levies, or other tax help you may need. I live in Lake Nona in Orlando, Florida, but I serve clients all across the country. Schedule an appointment if you need assistance and take a look at the resource page.
*The blog posts (as well as the YouTube channel) are my personal opinions and thoughts about a wide range of topics. They are not meant to apply to individuals specifically and should never be relied on as tax or investment advice. You should contact a professional for specific advice before taking action.