Unfortunately, errors and omissions do occur during the process of preparing tax returns. A Certified Public Accountant (CPA) might make a simple mistake, such as erroneously entering a number on a document, or he or she may misinterpret a law or make any number of unintentional mistakes. During an IRS audit, the CPA might discover the mistake and will have to accept responsibility for any errors that they’ve made. Any resulting litigation will require cpa professional liability insurance to help pay the costs for defense.
Your client will obviously be concerned how this may impact them and, best case scenario, they might simply need to file an amended tax return to resolve the issue. But if the problem can’t be so easily rectified they might feel their only recourse will be to sue for negligence. If this is the case, any acknowledgment that malpractice has been committed can truly damage your reputation, as well as cause you serious financial damage.
As a tax preparer, if you recognize that a mistake has been made it would behoove you to call the client and bring this to their attention immediately. In many instances, by preparing the amended return on behalf of your client, with an explanation to the client about what has happened and the reason for the amendment, everything should work out to the satisfaction of all concerned.
Hopefully your client understands that this is in their best interest and is thankful you remedied the situation in a timely manner. In some cases, however, the mistake may involve more intricate accounting, requiring your client to request permission from the IRS to make the necessary payments or adjustments.
CPA’s and other preparers have an ethical duty with respect to any errors and omissions resulting from the work they submit. Otherwise the potential for malpractice damages and exposure and the necessity for possible legal defenses will often be the result of their mistake. They should follow through and make sure that their client pays any taxes due, and they should always carry cpa professional liability insurance to aid them when they do make costly errors on tax preparations.