Question

Share your understanding of a tax preparer’s professional responsibilities. What penalties, if any, can accrue to a tax preparer who makes errors on a company’s tax return? Does intent (malicious vs. accidental) change those penalties?

Answer 1

Tax Return Preparer's are defined as any person who prepares for compensation, any return of tax imposed or any claim of refund of it's clients. No matter whether they are licensed or not licensed, they have certain set of professional responsibilities which includes the following :

• Observing and receiving required information from all relevant sources.
• Doing proper tax planning, using all appropriate adjustments, deductions and credits.
• Furnishing the tax payers with relevant and sufficient information, ensuring correct tax form completion.
• Keeping his professional knowledge up-to-date.
• Developing future financial plans with client.
• Reviewing the financial records, like balance sheet, profit and loss, cash flow statement, etc.
• Explaining the laws and regulations to the client.
• Analyzing the data and the information to the best of his knowledge.

If the tax preparer makes errors on a company's tax return, then a penalty of $1,000 or 50% of the income derived may occur from each such error in the return.
In case of malicious intent, the penalty rises to $5,000 or 50% of the income derived.