Expert: Richard Stolp - 6/9/2009

Question
QUESTION: Hello, I was audited for tax years 2005 and 2006 and the matter was settled/resolved by my accountant in early 2008..
or so I thought.

Just a couple of weeks ago I received a notification of my failure to file amended State of Michigan tax returns indicating the amount of tax due plus accrued penalty and interest amounts of more than 1,500.00 total.  

I had no knowledge of a 120-day timeframe within which these returns needed to be filed (after settlement of the
Federal Audit).

When I informed my Accountant he claimed that, at the time of his finalization of the audit, I indicated that I did not wish to file amended returns until 'we' received the 'bill' for the revised State tax amounts due, based upon the outcome of the Federal Audit.  

I have no recollection of such a suggestion to delay doing what was prudent and in my best interest and was in no way informed by the Accountant that there was a time limit in which we needed to respond with the Amended Returns.  I contend that the Preparer is paid to represent my best interest and that in this instance he should bear the cost of the interest and penalty amounts.  I feel that at minimum he was obligated to advise me that Amended State Returns needed to be filed to avoid risk of further expense in the form of the Penalties/Interest.  

I really feel I've been wronged by this CPA and would welcome a second opinion on whether he has acted irresponsibly in this situation.  Since this kind of
knowledge is supposed to be what I'm employing him for,
it irks me that he offers not even the slightest sense of
obligation or responsibility for this oversight.  

My confusion is whether to go direct to the State and explain the situation (whether that would be productive or not I have no idea)...or pay even more to get a Tax Attorney's opinion.  I might add that this CPA intends to
bill me for the submission of the just-filed Amended State Returns on top of a full billing amount of 985.00 for preparation of my 2008 Taxes this past week.  

I would welcome your thoughts on how I might best handle this matter.  

Thanks!

Mike L

ANSWER: I'd be happy to give my opinion, but it's only that.  From your side of the story it sounds like you trusted your CPA to know the state and federal regulations that govern how tax returns and amended returns have to be submitted.  I would say that fits into what a CPA is hired to do.  My legal expertise is limited; I understand you can only usually recover amounts that are tied to the "harm" done to you.  In your case it sounds like some penalty and interest on returns that were late.  You would have to pay the tax anyway.  

If it was me, I would take a deep breath for the few hundred dollars in penalty and interest and find a new CPA - or use a software program like Turbotax and do next year's returns myself.  Your case sounds like a "he said/she said" type of argument that might bear a few dollars reward if you took it to small claims - if the judge agreed.  You would also have the weeks of heartburn preparing for the appearance.  Like I said, vote with your feet and chalk it up to experience - then you can get on with things that make you smile.

---------- FOLLOW-UP ----------

QUESTION: I appreciate your perspective and point well taken about the real value in pursuing the issue...I wish that the penalty/interest amount was in the hundreds but since it was a two-year audit the actual interest/penalty amount owed is closer to $1,500 which, on top of his anticipated billing for the Amended Returns plus 2008 Tax, is rather difficult to let go.  I've prepared a letter to him suggesting that I should not necessarily bear the full amount and want to see if he will at least offer to give me a break on his fees -- having been with him for many years, he has certainly profited well from my business... Anyway, many thanks for your thoughts and time .

Answer
Best of luck on resolving this with your CPA.  I hope he surprises you with his answer.  One minor point, again just my opinion, I would consider calling him and saying you are sending a letter but wanted to share some of your disappointment and explain your position.  Sometimes it's harder to say "no" when you are talking to the person - saying no to a letter is easier.