If you are a typical New Yorker, you seldom if ever prepare your own tax returns. Instead, depending on the complexity of your situation and therefore your federal and state income taxes, you hire a CPA, accountant or tax preparation company to prepare them for you. With this year’s tax season quickly approaching its April 15, 2018, climax, which this year is extended to April 16 since the traditional “Tax Day” falls on a Sunday, you once again are trusting, or have trusted, your tax preparer to correctly and honestly prepare your taxes. What if (s)he doesn’t?
New York does not require a tax preparer to be a CPA or even an accountant. It does, however, require that each tax preparer who charges for preparing a New York State tax return or report and/or for filing a refund anticipation loan or check must register with the New York State Tax Department each year in which (s)he intends to do so.
Preparing tax returns are not the only reason why you hire a CPA or accountant. They often are part of an attorney-accountant team that engages in a variety of legal and financial undertakings including the following:
- Business formation and tax planning
- Estate planning
- Probate, estate and trust administration
- Property divisions in high-asset divorces
- Complicated bankruptcy proceedings
- Real estate transactions, particularly commercial ones
Everyone is human, even CPAs and accountants, and all human beings make mistakes once in a while. But when a financial mistake occurs on a document prepared for you by an accountant, or (s)he misses a filing deadline, or an investment or other strategy (s)he recommended to you turns out to be bad, you are the one who suffers the consequences. In terms of tax returns, the IRS or the State of New York could audit you and demand that you pay what they consider was your underpayment, plus possible interest and penalties. In terms of a missed filing deadline, you undoubtedly will be facing interest charges for the late payment and possibly penalties as well. Following your accountant’s poor investment advice could result in your losing some or all of your investment.
Before taking the drastic step of suing your accountant for malpractice, first see if (s)he is willing to “make good” on his or her mistake. As reported by CNBC, some tax preparers, for example, claim that they will go with you to the IRS should you be audited, strongly advocate on behalf of your position – remember, the IRS can make mistakes, too, particularly with regard to electronically filed tax returns – and pay any additional taxes and/or interest and penalties themselves that were caused by their own miscalculations, etc.
Filing a Malpractice Suit
Accountants and CPAs are held to a high standard of financial practice by virtue of the fact that they are professionals. The credentialing organizations to which they belong have both practice and ethical rules and regulations to which they must adhere in order to get and maintain their licenses.
As FindLaw explains, accountancy malpractice suits are handled in virtually the same way as any other type of malpractice suit; i.e., they are based on negligence. To prevail in such a suit, you must be able to prove the following four elements:
- Your accountant owed you a duty of care.
- (S)he breached that duty.
- You suffered financial harm.
- His or her breach of the duty owed to you is what caused your financial harm.
If your accountant intentionally misappropriated your funds, such as by theft or embezzlement, or deliberately misled you into an investment by misrepresenting its nature, you also may be able to sue him or her for fraud. For particularly egregious acts such as these, you likely will be able to recover your court costs and attorneys’ fees in addition to the actual amount of your financial losses, plus possible punitive damages.
For further information, please call DubiLaw toll-free at 833-FOR-DUBI (833-367-3824).