People hire a CPA to prepare their taxes with the expectation that the taxes will be properly completed. Individuals and small businesses hire CPAs for their tax knowledge and preparation expertise, and to avoid making mistakes. When a CPA makes a mistake on the taxes, it invites a host of potential issues. Most people want to know who's responsible for fixing the error and who pays the financial penalties when a CPA makes a mistake.
File an Amended Return
The first step to consider when you get notice of an error on your tax returns is filing an amended return. In some cases, the error is simple; a transposed number, a missing form or some other easily-corrected error. If this happens, you can use Form 1040X to amend the return and provide the information requested by the IRS. In these easily resolved situations, there may be no need to involve the CPA at all, even if he or she did make the error.
Consult Your CPA Agreement
If you want your CPA to address errors made on your tax return, start by consulting your agreement or contract with your CPA. Most contracts outline what services a CPA offers in the event of an error. Some CPAs will recheck the data and refile forms, and may or may not charge you for the additional work, depending on the agreement and circumstances. Other CPAs may go further and offer legal representation, whereas others won't offer any services at all beyond the initial tax preparation. Consult the fine print.
Getting Reimbursed for Errors
In many cases, with professional CPA firms that value their reputation, the CPA will reimburse you for errors. Many CPAs carry professional insurance that provides coverage for penalties and omissions, and the CPA firm may pay these penalties for you. However, you're typically expected to pay any difference in the tax liability yourself. Some CPAs may refund you the cost for preparing your taxes, but may not offer any reimbursement for errors. You may want to consult a tax attorney if you believe the CPA is not meeting his obligations.
Errors Leading to Audits
Your level of support in an audit varies, depending on the CPA and your individual agreement. In some cases, the CPA agrees merely to answer the IRS questions and may not advocate your case. In other cases, the CPA may serve as a witness for you, but may still not manage the audit for you. Some CPAs offer audit support as a value-added service or something you can purchase for an additional fee. Find out what that support entails before you sign up.