Is this worth a trip to small claims court?
February 17, 2010 9:45 AM Subscribe
Is it worth it trying to sue my accountant for not filing my taxes on time?
I had previously looked for some advice from the peeps on this board (http://ask.metafilter.com/131603/How-much-power-does-my-exaccountant-hold) and (http://ask.metafilter.com/124400/I-got-taxt-problems-and-need-a-CPA-in-New-Joisey) ...
In a nutshell, I have spent many hours and $$ clearing up many of the messes this guy created for me, and have found a new accountant who will handle all of my future accounting / tax filing needs.
My last issue with this old guy (JT), is that I received a letter from the IRS saying that i owe them $900 in late fee's for my 2008 taxes not being filed until August of 2009.
Long story short....JT who has done my taxes since 2001, and was perfectly fine up until 2007, had all my documents by March 1st. April 15th came and gone, and he stopped answering phone calls and emails, and even visits to his office. He finally got a hold of me, right as I was re-gatheirng EVERYTHING to have them done by a new guy...He got my taxes off. I got my refund, all seemed OK until i got this letter.
He is insisting (since he worked for the IRS in the past), that he can properly word a letter to have these late fee's removed. He says that the federal as well as most state governments are just desperate for money, and are imposing any fines they can...He says that since my return signified that I did not ow the governement and money, and instead wad due a refund, that there is a good chance that he can have it waived....
well, it seems like he is doing it again...he has been in and out of contact since X-mas time, and with tax season coming up quickly I anticipate him disappearing again soon...I want to get this resolved before I file my 2009 return. I am sure, that the IRS will simply hold back the $900 from whatever refund I wind up being due this year.
I am going to contact him once again in the next few days to inquire about any phone calls or letters he has written on my behalf, and if I get no response seek legal counsel.
I know in the big picture, that the IRS does not care if it was I or someone else who filed my taxes late. It is is ultimately my responsibility to pay the $900 (plus accruing interest), but feel that this is all the fault of my former accountants...All I have are the countless emails I had sent JT between April 1st and July 17th begging him to get back to me about the status of my return and if or when it will be filed...I am sure i can contact my cell phone company to get records of all the calls I made to him? I do have a few emails, when he finally got in contact with me admitting his fault for the delay?
If i take him to small claims court, will this be enough to get a verdict in my favor? Should i go after him with a real lawyer? What else can I do? I am already prepared to report him to the IRS and other accounting/CPA organizations...
thanks
I had previously looked for some advice from the peeps on this board (http://ask.metafilter.com/131603/How-much-power-does-my-exaccountant-hold) and (http://ask.metafilter.com/124400/I-got-taxt-problems-and-need-a-CPA-in-New-Joisey) ...
In a nutshell, I have spent many hours and $$ clearing up many of the messes this guy created for me, and have found a new accountant who will handle all of my future accounting / tax filing needs.
My last issue with this old guy (JT), is that I received a letter from the IRS saying that i owe them $900 in late fee's for my 2008 taxes not being filed until August of 2009.
Long story short....JT who has done my taxes since 2001, and was perfectly fine up until 2007, had all my documents by March 1st. April 15th came and gone, and he stopped answering phone calls and emails, and even visits to his office. He finally got a hold of me, right as I was re-gatheirng EVERYTHING to have them done by a new guy...He got my taxes off. I got my refund, all seemed OK until i got this letter.
He is insisting (since he worked for the IRS in the past), that he can properly word a letter to have these late fee's removed. He says that the federal as well as most state governments are just desperate for money, and are imposing any fines they can...He says that since my return signified that I did not ow the governement and money, and instead wad due a refund, that there is a good chance that he can have it waived....
well, it seems like he is doing it again...he has been in and out of contact since X-mas time, and with tax season coming up quickly I anticipate him disappearing again soon...I want to get this resolved before I file my 2009 return. I am sure, that the IRS will simply hold back the $900 from whatever refund I wind up being due this year.
I am going to contact him once again in the next few days to inquire about any phone calls or letters he has written on my behalf, and if I get no response seek legal counsel.
I know in the big picture, that the IRS does not care if it was I or someone else who filed my taxes late. It is is ultimately my responsibility to pay the $900 (plus accruing interest), but feel that this is all the fault of my former accountants...All I have are the countless emails I had sent JT between April 1st and July 17th begging him to get back to me about the status of my return and if or when it will be filed...I am sure i can contact my cell phone company to get records of all the calls I made to him? I do have a few emails, when he finally got in contact with me admitting his fault for the delay?
If i take him to small claims court, will this be enough to get a verdict in my favor? Should i go after him with a real lawyer? What else can I do? I am already prepared to report him to the IRS and other accounting/CPA organizations...
thanks
Wait a minute...it sounds like you haven’t tried talking to the IRS yet. Having been a small business owner in the US and even having been audited once, I’ve dealt with them quite a bit in the past. They can be very reasonable people, actually. You have plenty of evidence that you did what you could to get your taxes filed on time. I would call them first, tell them the story, and see what they can do for you. If you’ve always been timely with your taxes, and since you didn’t owe, they will probably reduce the penalty and may even eliminate it altogether. If they reduce your penalty from $900 to $300, will it be worth it to sue? Probably not.
posted by yawper at 10:25 AM on February 17, 2010 [2 favorites]
posted by yawper at 10:25 AM on February 17, 2010 [2 favorites]
*Usually* the CPA or firm they are associated with is liable for fees and other costs that are due to errors on their part. You need to contact the IRS and speak to a lawyer. Your current CPA may also be able to answer some questions.
posted by jeather at 10:29 AM on February 17, 2010 [1 favorite]
posted by jeather at 10:29 AM on February 17, 2010 [1 favorite]
You got a refund, yet are being asked for $900 in late fees? That doesn't add up.
from Avoiding Penalties on the IRS website
"Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return."
Is it possible you're mis-reading this statement and, in fact, what you have in your hand is the amount the IRS thinks you owe based on THEIR computation of your taxes? (which is what they'll do if you don't file)
If that's the case and you have proof you filed for the 2008 tax year then you can at the very least drop this down to $100.
posted by phearlez at 10:46 AM on February 17, 2010 [3 favorites]
from Avoiding Penalties on the IRS website
"Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return."
Is it possible you're mis-reading this statement and, in fact, what you have in your hand is the amount the IRS thinks you owe based on THEIR computation of your taxes? (which is what they'll do if you don't file)
If that's the case and you have proof you filed for the 2008 tax year then you can at the very least drop this down to $100.
posted by phearlez at 10:46 AM on February 17, 2010 [3 favorites]
Whups - postus prematurus on my part. Continuing...
By the reading above, if you owe no taxes you are liable for 5% of $0.00. It's possible that after 60 days they will require the minimum of $100 but reading that paragraph it's unclear if "100 percent of the tax on your return" means your total tax liability or your total total tax not paid by the due date (in your case, $0.00 if you were due a refund).
It's equally reasonable to read it either way; someone whose total tax liability for the year was $7 would be unduly burdened by a $100 fine. However a certain minimum penalty for not filing at all makes sense, as it creates more work for the IRS.
Either way, $900 doesn't make sense unless there are other penalties in play here than just late filing.
posted by phearlez at 10:53 AM on February 17, 2010 [1 favorite]
By the reading above, if you owe no taxes you are liable for 5% of $0.00. It's possible that after 60 days they will require the minimum of $100 but reading that paragraph it's unclear if "100 percent of the tax on your return" means your total tax liability or your total total tax not paid by the due date (in your case, $0.00 if you were due a refund).
It's equally reasonable to read it either way; someone whose total tax liability for the year was $7 would be unduly burdened by a $100 fine. However a certain minimum penalty for not filing at all makes sense, as it creates more work for the IRS.
Either way, $900 doesn't make sense unless there are other penalties in play here than just late filing.
posted by phearlez at 10:53 AM on February 17, 2010 [1 favorite]
Dude, I'm horrible about filing my taxes on time and correctly, including once understating my income accidentally by almost 50%, and I've never been fined a penny. The IRS pretty much reserves penalties for m,millionaires and repeat offenders. You almost certainly owed the $900 in the first place, and your accountant's screwup was making you believe that you didn't.
Either that, or the number you got from the IRS is based on their estimate, given incomplete information. These are particularly scary in the case of capital gains tax -- they're always vastly higher than the amount you actually owe.
This still sucks of course, but I don't think small claims court is going to help. You need to hire a trustworthy accountant to explain your problems to you!
posted by miyabo at 12:40 PM on February 17, 2010
Either that, or the number you got from the IRS is based on their estimate, given incomplete information. These are particularly scary in the case of capital gains tax -- they're always vastly higher than the amount you actually owe.
This still sucks of course, but I don't think small claims court is going to help. You need to hire a trustworthy accountant to explain your problems to you!
posted by miyabo at 12:40 PM on February 17, 2010
Ask your new CPA to review the correspondence you got and, if applicable, write the letter to the IRS to ask the penalties to be waived.
You do have a new CPA, right?
Don't have the old CPA do anything. You may need a lawyer, but ask your new CPA what they can do about this first, because it might not require a lawyer.
posted by larkspur at 12:52 PM on February 17, 2010
You do have a new CPA, right?
Don't have the old CPA do anything. You may need a lawyer, but ask your new CPA what they can do about this first, because it might not require a lawyer.
posted by larkspur at 12:52 PM on February 17, 2010
You could consider calling the local office of the Taxpayer Advocate Service, an office within the IRS that helps people deal with the IRS. Even if they won't help you directly, they would probably be able to tell you what you should do. Here is a link with more info.
posted by ekroh at 1:36 PM on February 17, 2010 [1 favorite]
posted by ekroh at 1:36 PM on February 17, 2010 [1 favorite]
Following up on what phearlez said. The amount of the penalty is based on the net tax due (i.e. minus estimated payments, prepayments, withholding etc). If you were owed a refund, there should be no penalty (not even the $100 min penalty for failure to file within 60 days -- see Patronik-Holder v. Comm'r, 100 TC 374). See also, this pdf.
Sounds like just a computer error; you should definitely contact the IRS to make sure that you actually owe the penalty. They likely estimated your tax due, determined it was in excess of the amount you paid, and assessed the penalty (not taking into account certain deductions or credits that you may have been eligible for).
IANYL, etc.
posted by melissasaurus at 1:59 PM on February 17, 2010
Sounds like just a computer error; you should definitely contact the IRS to make sure that you actually owe the penalty. They likely estimated your tax due, determined it was in excess of the amount you paid, and assessed the penalty (not taking into account certain deductions or credits that you may have been eligible for).
IANYL, etc.
posted by melissasaurus at 1:59 PM on February 17, 2010
Response by poster: Thank you everyone...some solid advice...
i will take notes tomorrow from what i have read, and take action...
posted by TwilightKid at 7:20 PM on February 17, 2010
i will take notes tomorrow from what i have read, and take action...
posted by TwilightKid at 7:20 PM on February 17, 2010
You don't technically need a lawyer to file a professional malpractice complaint. Only corporations cannot represent themselves.
But if the cost of hiring a lawyer is an issue, you can get the ball rolling yourself. Although I would first settle the payment issue with the IRS then try to recover it from the CPA. Honestly, I think getting the money from your CPA is easier than getting the IRS to back off. But it's your choice which avenue you want to pursue.
First, you can write a firmly worded demand letter and send it to your CPA's address of record via certified mail. Ordinarily, a demand letter contains a credible threat of legal action and reporting the professional to the relevant state board. Having it sent from an attorney tends to increase the credibility of the threat. If you can't afford an attorney for a full blown lawsuit, consider asking the attorney to only send the demand letter. I have done this for budget-minded clients for anywhere from $100-$200. Set a deadline for a response from him.
If that deadline passes without a satisfactory response from him, think about filing your own complaint in superior court. The fee to file a complaint (in CA at least) for a case under $25,000 is about $310. Unless you're destitute, you won't qualify for a fee waiver. Also, you can't get those fees back unless you signed an agreement with your CPA that specifically had an attorney's fees and costs clause (e.g. whomever wins a lawsuit arising out of this agreement recovers fees and costs). At the courthouse or online, you can easily find Judicial Council forms that basically require you to fill in blanks and check off boxes. You have to serve the complaint on the CPA. This costs about $30-50 to hire a registered process server. Once he's served, you file a proof of service at the courthouse and this starts the CPA's time to respond to your complaint.
It's not that hard once you muddle through the paperwork once. And there are many books that guide you step by step through this.
Since the amount at stake ($900) is relatively small, it will not be worth it to your CPA (if he's rational) to hire a lawyer to defend the lawsuit at full speed. It is much cheaper to just settle. You might want to point this all out in your demand letter. Because if the CPA files an answer to your complaint, he'll have to spend $300+ just for the filing fee and another $3000+ for an attorney retainer assuming he hires an attorney.
Anyway my point is don't assume you can't take legal action just because you can't afford a lawyer and a full blown retainer. It is totally doable and the legal system is there for everyone.
Disclaimer: I am not your attorney. I am not providing you with any legal advice. Rely on anything here at your risk.
posted by KimikoPi at 7:17 PM on February 20, 2010
But if the cost of hiring a lawyer is an issue, you can get the ball rolling yourself. Although I would first settle the payment issue with the IRS then try to recover it from the CPA. Honestly, I think getting the money from your CPA is easier than getting the IRS to back off. But it's your choice which avenue you want to pursue.
First, you can write a firmly worded demand letter and send it to your CPA's address of record via certified mail. Ordinarily, a demand letter contains a credible threat of legal action and reporting the professional to the relevant state board. Having it sent from an attorney tends to increase the credibility of the threat. If you can't afford an attorney for a full blown lawsuit, consider asking the attorney to only send the demand letter. I have done this for budget-minded clients for anywhere from $100-$200. Set a deadline for a response from him.
If that deadline passes without a satisfactory response from him, think about filing your own complaint in superior court. The fee to file a complaint (in CA at least) for a case under $25,000 is about $310. Unless you're destitute, you won't qualify for a fee waiver. Also, you can't get those fees back unless you signed an agreement with your CPA that specifically had an attorney's fees and costs clause (e.g. whomever wins a lawsuit arising out of this agreement recovers fees and costs). At the courthouse or online, you can easily find Judicial Council forms that basically require you to fill in blanks and check off boxes. You have to serve the complaint on the CPA. This costs about $30-50 to hire a registered process server. Once he's served, you file a proof of service at the courthouse and this starts the CPA's time to respond to your complaint.
It's not that hard once you muddle through the paperwork once. And there are many books that guide you step by step through this.
Since the amount at stake ($900) is relatively small, it will not be worth it to your CPA (if he's rational) to hire a lawyer to defend the lawsuit at full speed. It is much cheaper to just settle. You might want to point this all out in your demand letter. Because if the CPA files an answer to your complaint, he'll have to spend $300+ just for the filing fee and another $3000+ for an attorney retainer assuming he hires an attorney.
Anyway my point is don't assume you can't take legal action just because you can't afford a lawyer and a full blown retainer. It is totally doable and the legal system is there for everyone.
Disclaimer: I am not your attorney. I am not providing you with any legal advice. Rely on anything here at your risk.
posted by KimikoPi at 7:17 PM on February 20, 2010
This thread is closed to new comments.
What I can tell you is that you can't file this in small claims court because it involves professional malpractice, and small claims court won't hear those cases.
Ergo, you need a lawyer if you want to do anything about this.
posted by valkyryn at 10:12 AM on February 17, 2010