Discussion:Paying client's interest for my mistake

I take the position that I am responsible for my own mistakes, and I would pay the interest by writing a check to the state for the amount in the notice. She is reponsible for the tax, but I don't want the interest to grow because she takes a while to pay the state. I limit my exposure by writing a check now.

If you make the check payable to the client. it may be considered an adjustment for fees charged?

should the oil change dealer give you a 1099 for the new engine?

This is one of the hard parts of the job, admitting mistakes and handling them honarably. I feel that handling the situation well can get you a client for the long term and really defines what type of business you run.

However, on one occasion I did pay the tax. I had the niece of an 80+ yr old man stop by one April 12th to have me prepare the PA State Property Tax Rebate form. This form was not due until June 30th and after a long tax season, I tucked the form away to review after the 15th. Needless to say, it got tucked into a folder never to be seen again....until the niece called in July. Seems I forgot all about the uncle's form. The tax Rebate deadline was set in stone...so I couldn't just file it late. He was out of the rebate money. I felt so bad I wrote the uncle the $500 check for the rebate he would have recieved if I had done my job.

Now no good deed goes unpunished. The niece and her husband were so impressed with the way I conducted myself in making things right for their uncle, then came to me as clients the following season. They came bearing a plumbing business and 5 rental buildings :) It was like hitting the jackpot.

Regarding the motor replacement, the new motor is not income. It is a replacement of a damaged asset. The dealer will not replace it with a new engine, but a comparable used engine. I know, this exact thing happened to me.

The question really is, 'is the customer with the used engine better off than he was before going to the oil-change dealer?'

You could argue either way.

However, under RR 57-47, reimbursement for interest charges would constitute taxable income to the client since he had the use of the funds. Similarly, preparation of the client’s tax return without charge would constitute taxable income to the client.

I also pay the interest & penalties if it's my fault. I would also prepare the next year for free or at a discount.

As a side note, I picked up a new client in May and we filed their S corp and 1040 by the extended deadlines (or so I thought extended deadline on the 1040). Turns out the other CPA firm DID NOT timely file his 4868...client gets a $22k late filing penalty assessemntunderline text..

At what point do you call your E&O carrier?

Pay the interest BUT a free return for next year? Depends. Depends on the client and your relationship with them. I would very likely charge for the return work going forward but give them above and beyond service. Your service and time is valuable. We are humans first and professionals second and we all make mistakes.

Thank goodness all of our mistakes are not audited.

Happy Tax, do you say you will provide error-free returns? And do you think that's really what clients expect - especially given the annual articles about 50 tax preparers producing 50 different responses to one set of facts?