The growing trend in Professional Malpractice within the Tax Industry
August 4, 2004
By Jim Harnsberger, Sr. Tax Analyst

SAN DIEGO – In 1990 the IRS reported processing more than 335,000 amended tax returns for a variety of errors and omissions. The estimate for 2004 will top 4.2 million such filings, evidence of a significant growing trend in professional malpractice within the tax industry.

The Source of Problems is varied – Among the many causes that can be identified as the source for this phenomena is the fact that most tax preparers fail to do an adequate job in properly evaluating all of the important issues affecting a client.

Case Study 1 – A taxpayer who used the services of a top firm to prepare his personal tax returns, and who knew of a business activity engaged in by the client, failed to recognize this fact on the tax return. The result was an overstatement of tax liability over three years in excess of $194,000; a series of tax liens and enforced collection efforts by the IRS and the state; to collect taxes, that were in the end, erroneous but for the fact of the omissions on the original returns.

Such cases of malpractice are more common than most would believe. These issues can be grouped into two primary categories; (1) Errors, and (2) Omissions. An error is a material mistake of fact, generally resulting from negligence on the part of the tax professional in failing to take the time to make a formal determination of all facts in the preparation of the client tax returns. Conversely, an Omission is an item that should have been included on the return but for the negligence of the tax professional to complete the return, taking into account all facts and circumstances related to all activities of the client in filing their returns.

Who should the client seek redress from if in the final analysis it is determined and the IRS accepts that the original returns were in fact, erroneous?

In our Case Study 1 example, the actual damages were in excess of $35,000. Who does this client seek redress from for the credit damage resulting from the tax liens filed against them, that in the end were based upon errors and omissions contained in the original returns?

What about the “pain and suffering” the taxpayer went through in dealing with demands from the IRS to pay taxes that in the end were erroneous? What about the emotional distress this situation caused on the taxpayer; their marriage, the family and untold other causes of stress resulting from negligence on the part of a professional who simply did not know what they were doing?

San Diego based Tax Smart America has developed a unique business methods Intellectual Property patent that defines these legal standards, as well as an identification of errors and omissions found in almost every tax return filed. Careful consideration of all points, the operational considerations, and counter-measures for audits, amended return claims, and mitigation of former liabilities are a unique part of this proven business method, and provide a valuable enhancement to the legal services provided by law firms specializing in professional malpractice claims. You may reach the company at (619) 469-5800 for more information on their Business Methods Patent; or for a free case evaluation.