Return Filed with Error

[Uncle Sam]

I prepared and e-filed a client's return this year, that after IRS sent a notice of reduction in refund, eventually sends the difference.

The error was my mistake.

It's a senior citizen, single, who came to me about 3 weeks later than usual this year (end of March).
It's a relatively simple return - Soc Sec, 1099-Rs, interest, dividends, standard deduction.

I inadvertantly checked the box for an extra flat standard as "blind".
Client is NOT blind.

IRS sends a notice reducing the refund as IF the return was filed correctly - NOT CLAIMING the blind amount.

Then, a few weeks later, without any communication from me or the client, IRS sends the difference of $ 203 in refund - the difference between being blind and not.

What do I do?

Client already cashed the check. Only told me about it AFTER she cashed it.

[JG EA]

Amend.

Apologize.

Have client send a check with amended.

Offer to pay any penalties, if the client sends the amended quickly.

[erchess]

My Two Cents

I think this would be just like any other time you find a deficiency in a client's tax return. Who prepared the return is not material. You inform the client of the deficiency and the consequences of coming forward now and the possible consequences if the IRS eventually catches her. That much is boilerplate from any Ethics course or the EA Exam so I know that you know it.

I would also prepare an amended return and provide her with it along with an offer to pay (directly or through your E & O policy) the interest and penalty and to set up without charge an installment agreement if she so desires. I don't think she is entitled to have you or your insurance reimburse her for the additional tax because she benefited from the use of that money for a while. I would also give my E & O company a heads up. There is undoubtedly language in your contract that says you will keep them posted on anything you learn about material risk that you will be sued. IMHO there is little risk of you or the company having to pay anything significant but there is a good bit of risk that you will have to defend yourself at least to the extent of meeting with her and her lawyer.

I think that if you follow this advice your exposure would be limited to her P & I as of the date you give her the 1040X and you will have the extra benefit of not having to pay even that until she pays the IRS.

And finally give yourself a break. You are human and every human makes mistakes.

[sea-tax]

Depending on the client and how long she has been a client I might even offer to pay the $203 too. My usual policy is to pay penalty and interest for mistakes that I or one of my staff makes, but in certain circumstance when the amount of tax is relatively low I will pay that also if it is a good client or someone I really want to keep 100% happy.

[GRich0656]

Maybe I'm not reading the initial post correctly, but it sounded to me like the IRS caught the mistake, and sent the correct amount of refund after making the correction. Therefore, no repayment of tax is going to be required. I would try to contact the IRS to determine the correct handling of this situation.

[thomtax]

Maybe I'm not reading the initial post correctly, but it sounded to me like the IRS caught the mistake, and sent the correct amount of refund after making the correction. Therefore, no repayment of tax is going to be required. I would try to contact the IRS to determine the correct handling of this situation.

At the end of the post, it says that the additional "blind" money came in a separate check that the lady cashed before telling the preparer about.

LT

[GRich0656]

Thanks Thomtax. I read it wrong.

[joanmcq]

Usually in these circumstances, the client gets a letter stating the refund was reduced and then gets the refund as stated on the notice. the OP is unclear; did the client get the refund as indicated on the notice and THEN get an additional $203, or was the refund reduced to $203 per notice and that's all she got?

[Uncle Sam]

Return Filed With Error

IRS sent client a notice that her refund was being reduced.
It was reduced because IRS did NOT factor in the blind standard deduction.
THEN - IRS wound up sending her a notice that an ADDITIONAL refund was due ($203).
The IRS notice reconciled to the amount originally (incorrectly) calculated WITH the blind standard deduction.

[BHoffman]

I'm thinking of taking that deduction myself. I filled out a client's state payroll tax coupon and made a typo in the EIN. Ewww.