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Is Your Accountant Liable If You're Audited?

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By Christopher Coble, Esq. on March 24, 2015 12:54 PM

You hate filing taxes. It's okay. Most people hate filing taxes. This is why we hire accountants to do our taxes for us. They're the experts. They have the training. We trust them to do a good job.

But, what happens when you get audited and assessed a penalty by the IRS? Can you sue your accountant?

Your Tax Return, Your Responsibility

The IRS doesn't care if your accountant made a mistake. It's your tax return, so it's your responsibility. Even though you hired an accountant, you are liable to the IRS for any mistake. So, if the IRS adjusts your tax liability and say you owe more money, it'll be you who has to pay, not your accountant.

Negligence

What about the penalties and interest? You wouldn't have had to pay that if your accountant didn't screw up. Can't you sue for that? Yes, you could sue on the grounds of negligence.

To prove a claim of negligence, you would have to show:

  1. Duty - Did the accountant have a legal duty of care to you? Usually, by accepting to do your taxes, the accountant promises, either explicitly or implied, to do so with the competence and skill of a reasonable accountant.
  2. Breach - Did the accountant breach that duty? To prove this, you would have to show that your accountant did not perform his job to the accepted standard of competency.
  3. Causation - Did the breach of duty actually cause the harm to you? Did the accountant make an adding mistake, or did you give him faulty information? If it was your faulty information that caused the error, then your accountant is not liable.
  4. Damages - Did the accountant's negligence result in some sort of damage to you? Like we noted above, the tax liability was always yours. Even if you had to pay more to the IRS, you didn't suffer any damage. However, if you can attribute the penalty and interest fees charged to your accountant's error, then you probably could show damages.

Before you sue though, give your accountant a chance to fix the error first. Most accountants and tax preparers will help you navigate the audit process. Some will even guarantee their work and reimburse you for any penalty or interest fees.

However, if your accountant made real mistakes and is unwilling to help you, an experienced tax attorney may be able to help assess your options.

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