Oops!! Preparer's Ommission Leaves Couple with $104,295 penalty!
Oh, the poor Woodsum's. They took their return to their preparer who left one measly 1099-Misc off their return and this poor couple gets stuck with a $104,295 penalty...not to mention the $521,473 tax bill that goes with it. But don't feel too bad for them. The missing 1099 was for a $3.4 million dollar transaction.
They tried to convince the Tax Court they shouldn't have to pay a penalty since they had a CPA (with 20 years experience specializing in private equity & hedge funds) prepare their return and it was his inadvertent mistake that caused the problem.
Apparently the Woodsum's didn't spend much time reviewing their return, which included 160 information returns & was 115 pages long. The court found the Woodsum's had reasonably fulfilled their duty to review their return. The Tax Court upheld the 20% penalty since the scrutiny of the return was "so casual that a half-million dollar understatement could slip between the cracks."
But I guess that can happen when you have a $4,240,927 tax bill and $34 million in taxable income. (That's 12.85% effective rate for those of you keeping score.).
Oh, the poor Woodsum's.....
Stephen G. Woodsum and Anne R. Lovett v. Commissioner, 136 TC no. 29
- Linda Coleman's blog
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Oh Goodness!! Ignorance is sure expensive
That’s a huge price to pay for leaving your task for someone else. Sure the doc was 115 pages long and most of us would do what the Woodsum's did, just glance through. A similar incident happened with my friend who pays off her bills on her iPhone. The other day she accidently clicked ok for a scheme for which she was charged $5000!! Its over 3 months now and she haven’t got any refund….
As the wise men say, devil lays in details and for the Woodsum's the devil was of $0.1 million penalty!!!!
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Liability
My understanding is that the TAX preparer would be liable for any initial penalties and and interest he caused.
Chris
Owner Cel Financial Services
Registered Bonded California CTEC Tax Preparer
Please visit my website for all your Fillmore Income Tax needs.