I Fought the Law and the Law Won: Error by Tax Preparer Does Not Absolve Taxpayer

In Devy v. Commissioner, T.C. Memo. 2015-110, a recent tax court opinion, Mr. Devy found out the hard way that his trust in his tax preparer, aptly named Tax Whiz, was misplaced. Tax Whiz prepared his return and claimed for him an education credit of $2,500. After taking into account the credit, Devy’s return showed an overpayment of $1,863 but sadly Devy did not get to enjoy the refund as it was intercepted by the IRS to pay past due child support to New York. Poor Devy. Later the IRS audited Devy and denied the tax credit when he admitted that he had no proof that he had any educational expenses  for that tax year. Now instead of a $1,863 overpayment, he owes the IRS $637, plus interest and penalties. Poor, poor Devy!

Devy responded by saying, ok maybe I didn’t deserve that credit and maybe the American taxpayer just paid a portion of my child support but it’s not my fault. I trusted my tax preparer! Hey, with a name like Tax Whiz who wouldn’t trust them! Sadly, for Devy, it is the taxpayer’s responsibility to ensure that the tax return is done correctly and not the tax preparer; if the tax preparer screws up then you might have a claim for malpractice but taxpayer alone is responsible for payment of the correct tax, no matter what.

Often missed in the frantic rush to cash any tax refunds is this statement sitting above the signature line, which states: I “have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.” Notice the statement does not say: “I gave a bunch of stuff to my accountant (which may or may not be complete or accurate), answered some questions and now I can just go and cash my refund check. Thank you very much.” Ignorance is not bliss where tax returns are concerned. Even if Devy was telling the truth and he did not know Tax Whiz claimed the credit without his knowledge (either fraudulently or inadvertently) he still stands responsible for the tax due. That is true even if never benefited directly from the improper tax credit! I wonder if Devy will go back to Tax Whiz next year to have his taxes done…