Ask Joey ™ a Question

Will my CPA notify the IRS if my tax return is wrong in a prior year?

The U.S. tax code (IRC) is a nightmare and now more than ever, people are using CPA’s to have their taxes prepared. With millennials using their stimmy checks to invest in cryptocurrencies, start-ups, and Gamestop (GME to the moon), it can be tough to know how to properly report these items. Even with platforms like TurboTax, it is hard for the taxpayer to feel comfortable that their return is accurate and the the IRS won’t pillage your life.

Fortunately, hiring a CPA to prepare your tax return isn’t terribly expensive (typically less than $500). One of the first things the CPA will ask for is your prior year tax returns (probably the last two years). They’ll want to look through these and get a sense for how you filed in prior years.

If you are worried that the CPA will identify an error in your tax return from last year and will notify the IRS, then stop worrying! The CPA will not tattle on you and notify the IRS. There is a chance they could, but they are not required to. The CPA is only responsible for advising you of the error and helping you determine whether or not you should file an amended tax return.

Example Situation

Question: A single taxpayer engages a CPA to prepare the year 2 income tax return. In the course of preparing the tax return, the CPA discovers that a return was filed for year 1. Under the AICPA Statements on Standards for Tax Services, which of the following statements is not true regarding the CPA’s duties upon discovering an error in filing the year 1 tax return?

Answer: If the CPA finds an error made in a previous year, the CPA must advise the client of the error. The CPA is not required to notify the IRS of the error, and they are not required to file an amended return (the client may choose to do this, but the key is that the only rule in this situation is that the CPA must notify the client of the error).


You might also be interested in...

  • What is the difference between a signing tax preparer and a nonsigning tax preparer?

    A signing tax preparer is the preparer that has primary responsibility for the overall substantive accuracy of the preparation of a tax return or claim for refund. A nonsigning tax preparer who basically does everything but sign the return. In many cases, a nonsigning tax preparer will do most of the work, and then the […]

  • What is the penalty for failing to sign a tax return?

    The tax preparer must sign a tax return or claim for refund if the tax preparer has primary responsibility for the overall substantive accuracy of the preparation of the tax return or claim for refund. A penalty of $50 for each instance of not properly signing a return with a maximum of $25,000