AboutRichard Fritzler Expertise I am in the business of tax planning for business owners. Our company helps business owners structure so that they can be reduce the taxes that they owe, making them far more profitable.
Experience Since 1986 I have been helping successful business owners reduce taxes, protect assets, and limit their liability. The company is Owelesstax, incorporated at www.owelesstax.com
Organizations National Small Business Owners Association.
Nevada Association of Listed Resident Agents.
Citizens Legal Association
The Business Owners Institute
Publications Contributing author to "The Corporate Standard Newsletter".
I am also a writer for an email newsletter about business
Googlegroups/Successfulbusiness
I am also an Expert in the areas of Tax Law, Retirement Planning, and Estate tax issues.
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: The penalties and interest are from the underpaid taxes in 2005 and 6, not from the failing to notify over the last 4 months.
Obviously your accountant is not a great communicator. He did not communicate to you well enough that the audit that he represented you in was only a Federal Audit. That the State tax return is an entirely different process, and the IRS has no interest in dealing with the collection of State tax. HE did not communicate to you that the State "WILL" get a copy of the amended Federal Return and will MOST LIKELY pursue recovery of underpaid taxes.
Whether he communicated it or not, he believed it was in your best interest to take a chance that the State would fail to receive, process, address the Amendment of the Federal Tax return. 30 years ago your odds were pretty good. With many manual processes it was possible that someone would fall short and your amendment would fall through the cracks.
Today, this is probably frivolous thinking, but nothing ventured nothing gained.
Don't get me wrong, I'm not an advocate of the strip mall accountants. They go to school a long time to become the lowest paid of all the professions. That is not a good business decision for him. It always amazes me that somehow business people believe that their accountant will make better business decisions for them.
Accountants are also operating in a commodity industry, and can only make money doing taxes if they can do them faster then the next guy. the only tools they believe they can use to get clients is price and cost. This is the nature of the tax preparation beast. Most offer a low price for them to do the return and claim a low cost (We'll save you more on your taxes). There is no way for an accountant to demonstrate "Quality".
Don't expect much, they can't do much. All they can do is plug the numbers that YOU give them into a software program. Some accountants trying to leverage low cost against low price might cheat on your tax return to show a lower tax payment. Satisfying you for now. But ultimately, as you have experienced, wrong data on a tax return will be very painful. In most situations as in yours, the accountant from 2005 and 6 is no longer providing you service so he got away from the problem before it affected him.
That is the Cycle.
So. . . how do you break the cycle? How do you avoid the problems? how do you find an accountant that can do "Quality"?
That takes work. That takes you doing the taxes. If you do the taxes then you'll be around if the IRS comes calling and you will probably remember that tax return. Your accountant wouldn't, he's processed 600 more by that time. If you don't feel comfortable going it alone, then have an accountant do the taxes, but you do them too. Give him the same raw data that you have. Then if in the end you have the same numbers you can be confident in your numbers and you will know that his risk tolerance is the same as yours, that his thought process is the same as yours. If they are different, you at least will have a working knowledge that will allow you to "Communicate" better with him. He may have done something better for you, than you. This would be good insight, not likely going to happen, but we can always hope.
QUESTION: Richard, when I hire a CPA I presume to be hiring a Professional. When you >ANSWER: The penalties and interest are from the underpaid taxes in 2005 and 6, not from the failing to notify over the last 4 months.<< I disagree. The Notices I received specified that the failure to file the Amended State Returns is irresponsible conduct. HAD the returns been filed within the required timeframe, I would have not had to pay penalties and interest.
I pay a CPA to represent my best interest, particularly within an Audit scenario when the CPA declares that his is "handling" the matter and representing, supposedly, my best interest.
I believe good communication goes with the professional services for which I'm paying. This is not a strip mall accountant but a 40 year high-rise-office-building accountant who has represented, and profited handsomely from my business and numerous family members tax services for decades. When I'm represented by a CPA, I don't presume that I need to tell HIM what the filing requirements are for the deliberately complex Tax world any more than I would expect him to know the intricacies of my profession.
What part of "CPA" excuses said professional from being held liable by his client - or whatever body oversees his "profession" - for failure to file amended tax returns by a particular deadline on behalf of a client he is hired to represent.
Further, I am hiring a Tax professional to be just that...because I do not have the time or inside-knowledge required to prepare my own taxes and yes, if the Tax Code were not essentially a racket, designed in large part to allow accountants and the government to effectively conspire with one another and screw the average taxpayer out of their hard-earned dollars due to obscure proprietary information - in a language that they alone speak and know... well, then yes, I would probably seek to do my own taxes.
I welcome opposing viewpoints or finer points, but have to disagree with the initial notion you present that suggests he is somehow not in some respect at least partially at fault.
Answer I reread my answer, and I did not say that you could not, or should not, pursue legal vindication.
What I provided you was an explanation of the difference between Perception and Reality. You stated your perception that the Accountant should be competent and caring and professional and knowledgeable, and responsible. And you can go looking for that person, I'm trying to explain that is not what you get.
If you are so inclined feel free to pursue the legal aspect. I have no dog in this fight. I do not represent by association or deed the Strip Mall Accounting Community. I have no love for, nor financial benefit by the Strip Mall Accounting Community. And when I say Strip Mall Accountant I am referring to those that are not IN-HOUSE counsel, not captive, that do taxes for hire. They offer a limited service en-masse to the masses. They can't provide competent specific help, since they don't have any real working knowledge of your business, and outside experience that they con come to the table with, nor would you be willing to pay them enough to actually research something to the degree neceesary to depend on their advice.
I appreciate good competent business and I think many people are not taken to task often enough to either encourage them to do better business or run them out of business. So if you want to pursue him on principle then I support you, more than that, I'd be happy to provide you all the ammunition that I can with no personal compensation.
