Tax Preparer Liability

If you prepare the return, you're liable.

"Steve Foley" wrote

Unless they inform you (in writing) that you carry some responsibility, then it's all on them. Now, some companies may tell you that you have to fix any problems on your dime, meaning that you're off the clock when you prepare an amended return and/or respond to error notices that are your fault. Understand that you can't bill the client for the time spent fixing an error you made, why then should you get paid for doing so.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Any person who is a "preparer" with respect to a particular return is, in general, liable for the return preparer penalties unless that person can prove a defense thereto. See, e.g., Treas. Reg. Sec. 1.6694-2(penalty for position due to unrealistic position). Under Treas. Reg. Sec. 301.7701-15(a), an "income tax return preparer" is "any person who prepares for compensation, or who employs (or engages) one or more persons to prepare for compensation, other than for the person, all or a substantial portion of any return of tax under subtitle A of the Internal Revenue Code...." However, for purposes of the Section 6694 penalties, Treas. Reg. Sec. 1.6694-1(b) provides that "no more than one individual associated with a firm ... is treated as a preparer with respect to the same return ...." Further, the person treated as the "preparer" is, in general, the return preparer who signed the return as such. Where two or more persons employed by or a part of the same firm are "preparers" with regard to a particular return, but none signed the return, then, in general, the person with supervisory authority over the others is the "preparer" for penalty purposes. Treas. Reg. Sec. 1.6694-1(b)(1) finishes by stating "to the extent provided in 1.6694-2(a)(2) and 1.6694-3(a)(2), an individual and the firm with which such individual is associated may both be subject to penalties under section

6694 with respect to the same return." Under 1.6694-2(a)(2) and -3(a)(2), if a preparer is subject to the preparer penalties, then that preparer's employer is also subject to penalties if (a) one or more members of the principal management of the employer participated in or knew of the proscribed conduct, (b) the employer failed to provide reasonable and appropriate procedures to review the position in question, or (c) such review procedures were disregarded. So, in your case, if you sign the return as preparer, then you will be liable for any penalties. If you don't sign the return as preparer, then your supervisor will most likely be the "preparer" liable for any penalties. However, the outfit that employs you will also be liable for any penalties unless one of the exceptions applies (i.e., didn't know, didn't participate, had reasonable procedures, and made sure those procedures were followed). Any one of those exceptions is, of course, open to attack by the employee if the employer seeks to avoid its liability. Which does, of course, put you in the potential position of having to show that you were such a moron that no reasonable employer would have trusted you to prepare tax returns (or, more realistically, that they simply didn't have reasonably adequate procedures, or didn't follow them - which is the $64,000 reason for why you always make sure your supervisor reviews your work and signs off on it in writing; if the return is any more complicated than a W-2 return with standard deduction and nothing else funky, you do not want to just take a verbal "looks good to me, go ahead and sign it and send it to the client.").