Our CPA misled us

[breckgirl5]

Hello everyone,

I am beside myself with confusion/anger/depression right now and I need help.

For background, husband and I file separetly because he owes back taxes from many years ago. We keep our finances separate and our assets are all in my name.

Up until Q4 2006, my hubby was a realtor with an S Corp. At the end of the year, he exited real estate due to an underperforming market in our area.

We submitted all of his financials to a CPA back in Feb/March. Come April, he called us and said that hubby was due a REFUND from the IRS and state. He said he would file an extension and get the paperwork done by August.

We were naturally thrilled about the refund, and the money we were saving for taxes was then spent on a vacation!

Well, hubby went to pick up his tax forms from the accountant last week and -- low and behold -- he OWES about $2,500!!!!!!!!!!!!!!! (IRS and State combined.)

I am deeply puzzled by this. How could this guy miscalculate SO badly? On top of everythign else, I thought taxpayers were supposed to remit extimated payments with an extension form. Our accountant did not do this. Will hubby now be penalized for not sending $$ with the extension?

Also, can we pay these taxes with a credit card?

We are talking with the accountant tomorrow morning at 8am sharp. I want to have some opinions before then. Thanks in advance for any guidance you can give us. I'm in shock.

[Luis Mopeo]

Nobody can pass judgement in this situation because nobody was there listening the conversations.

With my clients, I'll often give them an educated guess about where they'll land when the return is complete because every one of them will ask. If I feel like I have a good handle on their situation, I'll tell them approximately where I think it will end up. I'll also say "This is just a guess, and things might change when the return is complete."

They always say "Oh, sure, I understand it's just a guess. I won't hold you to it."

Then if my guesstimate is wrong, they'll say "But you told me..."

Many tax professionals refuse to give out any preliminary figures for this very reason.

You weren't specific as to what "realtor with an S corp" means. If your husband was responsible for making sure the S corporation returns were properly filed, dropping '06 stuff off in February/March of '07 is about a year too late. There also may be payroll tax issues.

Again, nobody can say without having been involved with the conversations.

[breckgirl5]

need clarification

Nobody can pass judgement in this situation because nobody was there listening the conversations.

I'm not sure I understand this answer, because I thought role of an accountant was to at the VERY least give you a rough idea if you owe or if you are due a refund. I would think this would be very easy to determine with some preliminary calculations.

By the way, the S Corp taxes were fine and were already paid (so he was not a year late)... it was his personal income taxes that ended up short.. and he was using PayChex to handle the payroll. My husband even double checked with him and said, "OK, are you SURE I will not owe on my personal taxes?"

And what about the penalties that he'll incur now, due to the late payment (no estimated payment was sent with the extension). Is it unfair for us to ask him to absorb some of these penalties?

I realize you were "not there," but the situation is not that complicated. He told hub he would be fine. My hub even called him back to make doubly sure.

I guess the essence of my question is this.... if a hired CPA tells a client that he/she does not owe taxes... and then it turns out the client DOES owe... who should be responsible for the penalties?

[BOB W]

"We submitted all of his financials to a CPA back in Feb/March. Come April, he called us and said that hubby was due a REFUND from the IRS and state. He said he would file an extension and get the paperwork done by August."

WOULD YOU please explain "Financials". Did you do the bookkeeping???????

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"Also, can we pay these taxes with a credit card?" YES

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[Uncle Sam]

CPA Mislead You

First of all, you haven't told us why there were tax estimates to be paid, if your husband was on a salary with withholding.
Second, you haven't told us if any facts were changed after the filing deadline with respect to your data - did you need to give him additional tax information AFTER 4/15 that impacted the return?
Third, although it's advisable to pay any taxes due with an extension, it's not required anymore.
As the prior poster mentioned - we're not here to give you advice when we don't know if we're dealing with all the relevant facts.

[DonPriebe]

But ...

If this was the CPA that normally does your taxes every year, and ...

You normally owe taxes when you file in April, and ...

This year was not that different from other years, and ...

You gave him all the relevant data in Februray, then ...

at a minimum I think he owes you a d..m good explaination of why he so misjudged your position in April.

[WhiteOleander]

You are ultimately responsible for your taxes. I would imagine that your husband has had clients blame him for something gone wrong on a deal. They claim your husband told them something. And it turns out not to be accurate. Or perhaps never said. But, the client is ultimately responsible for the papers they signed.

It is absolutely impossible for any of us to tell you what went wrong. It's like trying to give a haircut over the telephone.

[JohnH]

What I would do

Interesting title - "Our CPA misled us", rather than "Our CPA made an error". One would get the initial impression that your CPA deliberately gave you wrong information in order to trick you into spending your tax money on a vacation.

If you were my client and I prepared an estimate back in April with a guarantee that the estimate was correct, and then we learned I had made a mistake, I'd pay the late payment penalty due on the balance due from April until the day I gave you the return. I might also pay the interest on the late payment. I would not pay the estimated tax penalty because you would have incurred that penalty even if you filed on April 15. On a $2,500 balance due, your Penalty & Interest on $2,500 will be about $30 per month. Your estimated tax penalty would probably be about $ 220.

On the other hand, if you provided me with additional information after April 15 which materially affected your tax liability, I'd refuse to pay any penalties & interest. Common sense might tell you that the $30 per month I mentioned above is a fairly insignificant amount to pay in order to get your return prepared correctly and not under deadline pressue. I'd also encourage you to get your info in to me well before the filing date next time (if there is one), in order to avoid our having to do last-minute calcuations that you want to hold me responsible for. Finally, if you insisted that I pay the penalties & interest after rushing me and not having given me all the info I needed, I'd insist that you find someone else to prepare your returns in the future.

[ED SMITH]

I would guess that BOB W is on the right track. So often I see income/expense statements self-prepared, or even done by bookkeepers, that include personal expenses that have to be culled out.

The CPA on doing a guestimate would have only seen the totals only and not the details , which might have contained errors. A common mistake is taking car payments as a business expense.

Please let us know how Monday's 8 sharp meeting goes.

[Larmil]

Assuming CPA

I would guess that BOB W is on the right track. So often I see income/expense statements self-prepared, or even done by bookkeepers, that include personal expenses that have to be culled out.

The CPA on doing a guestimate would have only seen the totals only and not the details , which might have contained errors. A common mistake is taking car payments as a business expense.

Please let us know how Monday's 8 sharp meeting goes.

We are assuming that the person is a CPA. Sometimes the general public does not realize the all 'tax preparers' are not CPA's and that all CPA's are not 'tax preparers'.

[Corduroy Frog]

BreckGirl

BreckGirl, there are reasons why many of us are not willing to commit and jump on board. We have heard this scenario before, and when we get involved we find out why there are such descrepancies.

I was enthused once about getting a new client. She had a small business and that meant off-season work (we love customers like this). Her previous accountant/tax consultant had really done her wrong, as I listened to her complain.

After immersing myself in her work for a couple days, I found out what was wrong with her first accountant. Nothing. Biggest mess I'd ever seen, and no compunction on her part to ever do anything different or take any suggestions. One of the things I had to do was get the equipment schedule from the previous CPA. He was so glad to get rid of her. He hadn't even been paid.

Don't be insulted at this comparison, because I don't think you are the same as the above. However, as people in the tax consulting industry, we know enough that we have to walk in the other man's shoes before coming to conclusions.

To look at your situation a little more closely, consider some of the things you've said. Your husband has to file separately because he owes back taxes, meaning he hasn't filed or hasn't paid. We don't wish him ill for this -- we encounter this quite often. But this may explain why all of a sudden he owes more than previously thought. The $2500 could include previous amounts due, and even if there were a refund it would be swallowed up by applying it to his account. Then you told us he was a self-employed realtor. This means 1099s coming in and launches any number of descrepancies in receipts.

BreckGirl - I can't say that any of the above applies to your situation, and your CPA tax preparer may in fact be less than competent. I've only introduced a few of the reasons why so many of us are noncomittal to blame him. Most of us who post are tax preparers, and over time we learn about the nuances in our industry.

[geekgirldany]

I agree with everyone else who has posted.

I think what your husband needs to do is ask what made him calculate in April you would have a refund versus you now owe. He should give you a answer that makes sense. There maybe something left out on the CPA side or your side. He may have been doing a estimated by going on previous years numbers and then found something else that changed the current year. It could just be a mistake.

I never tell people how much they are getting in a refund... even when they ask I always tell them I don't have the tax return completely finished and can not give them an answer. This is better than them expecting a refund that is either less or them owing. Customers that I estimate taxes for during the year... well I try to give them my best estimate I can. Sometimes itemized deductions can be lower than they previous year causing a lower refund or making them owe.

Just give the CPA a chance to explain.

[veritas]

No offense

But if the only way you could afford a vacation is with a tax refund, you might take a look at your priorities.

[Uncle Sam]

CPA Misled Us

In answer to the original poster's question - yes - you can pay your taxes with a credit card as was previously answered - however - you must bear the cost of the service fee involved with the transaction.

[Bird Legs]

Another Question

How come the S Corp. had to pay taxes? The profit or loss from the corp. passes through
to the owner(s) to be reported on their personal return.