Interest & Penalties Paid by Me?

[taxxcpa]

Although the client had the use of the money, I would pay the interest since he did not, to my knowledge, have any need for a loan and it is unlikely that he received any interest income from the "loan."

[mastertaxguy]

Lesson to be learned: Interest and penalties

Curious: what measures have you taken (original post) to avoid a reoccurance?

I helped out during the last "off season" a non-chain tax service who's owner got behind, and who's staff was at best ill equiped. I worked on about 150 returns, and found about 75 taxpayers needed to amend either federal and/or state, returns mostly for additional refunds but some for substantial additional tax, interest and penalties. (I define substantional for thus purpose as more than $300.00). There were even FBAR issues because, it appears, rather than listing individual financial institutions, the office practice was to lump all interest and report it on Schedule B without asking the FBAR questions on Schedule B. Five taxpayer provided lists of interest from banks, two of which were in Canada. Based on the amoutn of interest paid, it was obvious to me the FBAR threshold was met. Some of you know the FBAR penalty to the taxpayer can be $10,000.00 or more.

It was apparent that the owner (nice guy and all) and his previous preparers did little in the way of a client interview, or even review from one year to the next which, in many cases, would have revealed the missing documents. Worse, to me, was the practice of accepting the client lie that "everything is the same as last year." Refund checks were thus mailed to long ago abandoned addresses, deposited to now-closed checking accounts, and so on.

Sooner or later, we all make mistakes. So, the question to me is what could I have done differently, and what should I do differently going forward. Sooner or later, we all make mistakes.

TTB organizer is a good place to start for a checklist on income, deductions, doing an interview and related items. Sometimes I catch myself and stop transmitting a return until I look at it again the next workday. I compare the software list of W-2's, 1099's and such with the document I received. At least once a month during "the season" I find I skipped over a W-2 or 1099 even though I marked them as entered.

As for reimbursement of penalty/interest, what does your engagement letter say? How much do you rely on the TP's referrals for other business? Was the TP rushing you to get the return done? Did the TP beat you down on price?

[AZ-Tax]

OIH mistake and Interest & Penalties for preparers mistake

geekgirldany, I hired a new person last year and she did that on about 3 tax returns. I caught two for which one I already told them they were receiving a refund and on April 15th, I then told them they will be owing. The 3rd one I didn't catch till April 16th and immediately amended it. When ever I am at fault, I pay the penalties and interest but I had one client I had for 5 years who wanted me to also pay the additional tax. I raised my fees on the TP after I obtained my EA and that TP went bye bye.

[geekgirldany]

Thank you all for responding.

Last year, I was just rushed anyways. I was sick three times during the tax season last year, each time with a different strain of the flu. So I had been sick and was trying to get the returns finished. I usually review the return with the client when they come by but I remember I did not with this client.... I am sure I would have caught it. I did catch several mistakes last year before clients left the office.

Client is good person. I haven't had any referrals from him and he isn't pushing to get a return finished. He has never complained about the bill. I do not even have anything on the engagement letter about such a situation coming up and how it would be handled.

Like I said my fault and I should have caught it. I've always reviewed returns at least three times before they leave the office. This one just got by me in a rush.

I feel like I need to cover the interest and penalties. It wasn't his fault, it was mine. I know everyone makes mistakes but this one should have been so obvious to me.

[JohnH]

From what you've described, this is a situation in which I'd pay penalties and interest. There are some where I'd pay penalties only, and some where I'd pay both. I think it's a mistake to spell out a policy on this in the engagement letter. Sometimes policies box you in when you need flexibility.

[DMICPA]

Pay the client

Better if you are going to pay I would pay the client directly.

[ruthes]

Penalties and interest

If my memory serves correctly, there was a thread on this a while back but I cannot locate it. I do recall one of the threads saying NO their policy was not to pay penalties and interest. If my fault, I do pay penalties and interest but believe me I have had some disagreements with some TP's who tried to tell me they gave me the document but they never did.

Where I work the W-2s and all other papers related to return have to be stapled in the back of their folder. If it is not then we do not pay penalties and interest on the item in question.

[geekgirldany]

I called the client yesterday and explained the situation. He was very understanding. I told him that I would not charge for preparing 2013 tax return. At first he said I was being too generous but I told him to let that cover the penalties and interest and the aggravation from the mistake I made. He agreed.

I am going to have to develop another system for catching such errors. When you are in a rush, things like that will happen.