By What’s your worst tax nightmare? Identity theft? Not having enough money to pay all the taxes you owe? How about this: your CPA, enrolled agent, or other tax preparer has not filed your taxes for three years.
Dr. Lee, a Florida surgeon who earned over $1 million annually, had this sad experience. His CPA completed his tax returns and had Dr. Lee review and approve them for electronic filing, but the CPA never e-filed them with the IRS.
By the time Dr. Lee found out about it and filed his returns late, he had lost a $288,409 estimated tax payment to the statute of limitations and ended up owing the IRS over $70,000 in failure-to-file and failure-to-pay penalties.
Dr. Lee sued the IRS in court, arguing that he shouldn’t have to pay the penalties because he had “reasonable cause” for failing to file: he had authorized and relied on his CPA to electronically file them.
The court rejected Dr. Lee’s argument, stating that all taxpayers are legally obligated to see that their tax returns are filed on time. A taxpayer’s duty to file a return is not excused because he or she relied on a CPA or an attorney to file the return.
This rule has no exceptions—not even for e-filed returns, which taxpayers can’t file themselves. when using a paid preparer.
The lesson of this case is clear: Never take your CPA’s or other tax professional’s word that your return was e-filed. Check with the IRS to make sure that your return was e-filed.
You do this by establishing an online account at irs.gov and requesting a tax account transcript. It takes two to three weeks after your return was supposed to be filed for a transcript to become available. If no transcript is on record, check with your tax preparer.
Alternatively, you can always file your tax return yourself by mail or private delivery service. Taxpayers can’t electronically file their returns themselves—they must rely on a tax preparer (or tax software provider) to do so for them.
To file your return by mail or private delivery service, you must give your tax preparer a hand-signed and dated statement that you choose to file in paper format and that you, not the preparer, will submit the paper income tax return to the IRS. Then, your tax preparer must attach IRS Form 8948 to the tax return you will paper file.
Filing a paper return will significantly slow the IRS processing of your return, which may prove a hardship if the IRS owes you a refund.
If you want to discuss the filing of your tax return, please call me on my direct line at 408-778-9651.