I missed something.....

[Denne]

I entered a 1099 Misc, but missed that it did not add to the total income. The client has approached me about paying taxes and interest. I responded to tell her that I would have paid penalties, but not taxes or interest. She has called me twice telling me she need to set up an appointment and collect the interest, at least, since she feels it is entirely my fault. She has indicated that she will not be able to pay the entire amount of taxes and that any continuing interest should also be my expense.

I thoughts are that she had control of the funds....not me.... If she had given the money to me I would have earned all but $10 of the interest charged if I only had a return of 3%! The offices where I worked before going into business for myself never paid interest...only penalties. There are no penalties charged at this point. This woman is calling me way after hours and has said she also needs to see me....of course two hours after my office has closed for the day. She just called a little over an hour ago and left a message since I was not home. She said she has left four or five messages....she has not...she left one message and one email right after that and I responded to the email so I could clearly explain my policy. She just will not stop harrassing me about the darn interest....currently $60 from the notice she gave me..which was dated in March.

So.......what would you do?

Thanks ;~)

[JohnH]

At some point you have to put an end to things and decide how much time you're going to invest in a $60 dispute. There are cases in which I've refused to pay interest, other cases in which I've paid part of the interest and some in which I've paid it all. (plus penalties if I coudln't get them abated) You have to use your judgement rather than rely upon (or hide behind) some sort of inflexible policy.

In this case I'd probably send her a check for the $60, plus enough additional interest to get her through 60-90 days, and tell her that after that she'll be on her own. That should give her enough time to get the money together, but if not then she will just have to work out her problems with IRS from that point forward. They are pretty easy to work with, so you could fill out the 9465 and enclose it with the check.

[SunTaxMan]

Have you addressed this subject in your Engagement Letter?

If not, and even if you have, at $60.00, why is there any question? Pay it and get on with life. You may not prevent bad mouthing from this client, but refusing to pay it will certainly "complicate" the bad mouthing.

[Jack from Ohio]

If the mistake is mine, I pay all interest and penalties. In the realm of the business world, you must decide if the amount of business you may lose or retain for the $60 is worth the $60.

[ed_accountant]

I agree with others above. I would pay the interest if the mistake was mine.. I would also pay the interest to make this client go away! If you don't, you risk this client bad-mouthing you forever. Your client seems pretty determined to make you pay and I would guess would not hesitate to make online complaints about you on the web..

Good luck

[Denne]

I agree with others above. I would pay the interest if the mistake was mine.. I would also pay the interest to make this client go away! If you don't, you risk this client bad-mouthing you forever. Your client seems pretty determined to make you pay and I would guess would not hesitate to make online complaints about you on the web..

Good luck

Well, she is VERY outspoken so I really expect she has bad mouthed me already. I feel you are all right about just sending her a check for the interest. I will be happy to just be done with her and hopefully she will find another preparer that will take on her mess. I know after her strange behavior and lying to me that I won't be interested in doing her taxes ever again. Won't have to put up with her long "after hour" appointments. I always allowed her a half hour and she took ...two hours... of that time!

Thanks again....I guess I just needed to know that I wasn't being stupid to back down after I had explained to her that I would pay penalties and not interest.

[Jack from Ohio]

I would only pay the interest up to the date you send the check. Any further should rightly be hers. Had you not made the mistake, her ability to pay most likely would not have been any different. Then she would also scrutinize every entry because she either owes more or is getting a smaller refund than last year.

The taxes and interes are HER responsibility from the time that you agree to making her whole from your mistake.

If she does go somewhere else next year, you will only lose stress and headaches!

[Denne]

I would only pay the interest up to the date you send the check. Any further should rightly be hers. Had you not made the mistake, her ability to pay most likely would not have been any different. Then she would also scrutinize every entry because she either owes more or is getting a smaller refund than last year.

The taxes and interes are HER responsibility from the time that you agree to making her whole from your mistake.

If she does go somewhere else next year, you will only lose stress and headaches!

AMEN!!

[jainen]

>>she feels it is entirely my fault<<

Well, I agree with her. It would seem your quality control procedures have a fundamental weakness. If your engagement process is similarly weak, you have not limited your liability and therefore have unlimited liability for the results of your work, including additional assessments from the IRS. So what is your answer to SunTaxMan's question? Have you addressed this subject in your Engagement Letter?

[michaelmars]

Jainen-sometimes its not a legal question or something addressed in an engagement letter which rules the decision process. Sometimes its a practical business decision. I usually don't pay interest but if i wanted to keep this client i might, or if her bad mouthing me was something i didnt want. If she were a pia client and someone i was dropping i would let her know that she signed the return with a matterial error, she is responsible for all taxes not me and since the irs didn't assess penalties then i have no further obligation to her. Dhr theoretically earned interest on this money by keeping it in the bank since 4/15 so now she has to give it over to the irs. Not my fault her bank pays less than they charged her.

On a separate note-back when i worked out of my house i started a policy that i still maintain [much easier now with caller id and other technology]. my hours are 9-5, tax season till 8 then the phone is not answered and messages outside of those hours are ignored if they are simple "call me" messages. Once per client i explain that if you call me after hours expecting me to track you down the next day [home, office, cell, etc.] i am not doing it. why should i chase you when you are calling me. Of course i accomedate specific requests and all my "better" business clients have my cell.

[jainen]

>>sometimes its not a legal question<<

In my opinion, that's an odd thing to say when our livelihood consists entirely of applying the law in a professional context. There is a reason our industry's ethical standards have had to be codified and we are under such pressure to submit to further regulation. If it is your policy to not stand behind your work unless the IRS considers an actual penalty to be necessary, I believe you should disclose that prior to accepting payment.

Regardless of how the client took the return, there is no doubt in the original post the tax preparer made an egregious error that should have been caught with the most basic checking procedure. To blame this on the client herself and later decide only to cover her damages for a marketing advantage (if at all) is, in my opinion, not very cool.

[Terry O]

I agree with paying for interest & penalties on any mistake that I make. That has been my position for the past 29 years - -it's a wake up call to ME to be more diligent and responsible.

That being said, we are human - -and make mistakes - - -I learned that you earn a lot more respect when you "woman or man up". By putting yourself in their shoes, the right thing to do should be obvious.

[michaelmars]

"In my opinion, that's an odd thing to say when our livelihood consists entirely of applying the law in a professional context"

So are you saying that even if your engagement letter does limit your liability you should never offer to pay the interest? What i said about not always being a legal question also means you can offer to reimburse or make someone whole even if you aren't obligated to.

Your answer seemed to me to say that the Engagement letter rules the decision to pay interest or not, i was just saying that sometimes you can make decisions on what is good business over and above or inspite of the engagement letter or what the law entitles.

[BulldogTom]

I think what Jainen is saying is that what Denne "has" to do is governed by the engagement letter. If there is no engagement letter, then the liability is potentially unlimited or governed by local law.

Tom

Lodi, CA

[HV Ken]

I entered a 1099 Misc, but missed that it did not add to the total income....

It is our practice that we go over each return with the client when they pick up and sign. I would hope that an error of this magnitude would have been obvious to the client when you were going over their Schedule C with them.

We had an example this year where we forgot to include their non-1099-MISC income (about an additional $4,000), and the client asked about it when we were going over their return. We had to apologize and correct the return before we concluded the delivery of the final product, receive payment, and e-file. While these kinds of mistakes are rare in our practice, they do happen and this highlights the value of going over the return with the client before they sign for it.

My opinion is this was your mistake, so I would be inclined to pay all interest/penalties, but not the tax liability itself. We do have this stated in our engagement letter.

[jainen]

>>what Denne "has" to do is governed by the engagement letter<<

Perhaps my last post was too cold. But in three posts over four days, Denne STILL hasn't answered the question so I presume there is nothing from which to form an answer. It's a common enough shortcoming in tax practice, but in my opinion it is unreasonable to then turn around and hold the client responsible for guaranteeing the accuracy of the data entry.

Tax and accounting professions are under a lot of scrutiny from government, news media, and our own clients. Good and even extra service is important because we have little room to compete on price. In my opinion, good service starts with good communication so the client knows what to expect from the engagement, including what her own responsibilities are and how future problems would be handled.

Look at what has been said in this thread. Is Denne really supposed to blame the client for signing the return, and only pay the minimum to keep her from bad-mouthing? Heck, she doesn't have to bad mouth anybody--just tell the truth.

[taxxcpa]

Regardless of legal liability, if a tax preparer makes a mistake, he should pay all penalty and interest. A client, of course, would have the use of the money interest-free, but he did not engage you to provide him an interest-bearing loan.

Even if it is the client's fault, you cannot always be sure. I missed a couple of things last year and had scanned all client documents. Since I had scanned them, I was able to see that it definitely was my fault. I paid all penalty and interest which amounted to more than I had charged to prepare the returns. Their past and future business was well worth the cost.

[jainen]

>>scanned all client documents<<

Scanning is fantastic! No longer do I have to resize copies so I can fit several docs on a page and still have boxes filling every corner. But before I scan, every key number on every document has to get a red checkmark and a blue checkmark, matching marks on the worksheet or form printout. Of course, it's important to use software with very powerful error-checking features too. I just would rather pay the money for top notch tools than P&I.

On the other hand, I haven't been satisfied with OCR entry yet, scanning W-2's directly into the tax return.

[michaelmars]

>>scanned all client documents<<

Scanning is fantastic!

WE ARE IN the process of scanning everything in the office 5 interns all with a workstation. they are getting about 5 drawers of files done each day. 2 scan, 1 renames and puts it into our storage softwareprogram and 1 goes into the storage program to make sure it opens and is legible and complete. and one boxes up the files either for offsite storage [7 years required in NY] or boxes them for shredding.

[JohnH]

This has been a fascinating thread, mainly to hear the various perspectives concerning the payment of penalties & interest when the preparer makes a mistake. I'm not ready to criticize anyone's approach, yet I've seen some things I would consider depending upon the circumstances and other things I would never consider under any circumstances. One thing I've taken away from this is a personal resolution to re-think what is and is not in the engagement letter, since it's clear that this is where the conversation with the client (and the liability) begins.

[BulldogTom]

My engagement letter says I don't pay interest. I point that out to every client.

However, in the few cases where I have made a mistake and there is interest involved, I usually pay it. In Denne's case, I would pay it too.

Just my 2 cents.

Tom

Lodi, CA