You hired a professional, paid for accurate work, and now the IRS says the return is wrong. The first question most people ask is whether the preparer is on the hook. The answer surprises almost everyone, and it is the reason this page exists.
When you hire a tax professional, whether a CPA, an Enrolled Agent, or another paid preparer, to file your federal or California state tax returns, you expect accurate and legally compliant work. Yet tax law is notoriously intricate, so mistakes happen. The IRS shows little leniency when errors arise, whether intentional or unintentional. Taxpayers whose income tax returns were handled improperly may face significant civil and criminal tax penalties if the IRS believes they deliberately engaged in fraudulent practices or failed to correct the inaccuracies once discovered.
What Should You Do When Your Tax Preparer Makes a Mistake?
If you hired a preparer to complete your return, you had a reasonable expectation that the work would be done properly. Sometimes the preparer, either intentionally or unintentionally, makes a mistake that the IRS catches, which can trigger an audit, and ordinarily an assessment of additional tax, penalties, and interest follows.
After a change in the law over a decade ago, anyone who prepares a tax return for someone else can be held liable for mistakes in that return. A preparer who erred could face an IRS monetary penalty. The IRS does weigh the preparer’s testimony regarding the cause of the mistake, and errors deemed reckless carry the largest penalties. If the preparer acted in good faith and made an honest mistake, financial penalties can sometimes be waived. The preparer may also face a non-monetary sanction, such as being barred from preparing returns for a period, or a referral into tax preparer fraud proceedings where the conduct is serious.
Who is Liable, the Taxpayer or the Tax Preparer?
You are ultimately responsible. Even if your preparer commits an egregious error or engages in outright fraud, you generally remain liable for the additional tax, interest, and civil penalties the IRS or the California Franchise Tax Board assesses. That is because you file your return under penalties of perjury, which places the responsibility on you to ensure it is correct. Signing the return adopts it as your own.
That said, a preparer who knowingly or negligently caused an underreporting or an inflated refund may face separate fines, injunctions, or criminal tax charges under IRC section 6694 and parallel California law. In some situations, the preparer may offer to reimburse you for part or all of the penalties and interest if they concede fault. However, you will still typically owe the underlying tax. You can potentially sue a preparer for negligence to recover penalties and interest, and tax that was paid and cannot otherwise be recovered.
What Are the IRC 6694 Tax Preparer Penalties?
Under IRC section 6694, the IRS penalizes a preparer who understates a taxpayer’s liability. Which penalty applies turns on the preparer’s conduct.
The first tier addresses an unreasonable position. If the preparer took a position the preparer knew or reasonably should have known was unreasonable, section 6694(a) imposes a penalty of the greater of $1,000 or 50 percent of the income the preparer derived or intended to derive from preparing that return or claim. A position is unreasonable when there was no substantial authority for it, and it was not disclosed, or, if disclosed, there was no reasonable basis for it. If the preparer had reasonable cause for the understatement and acted in good faith, section 6694(a)(3) provides an exception.
The second tier is far more serious. Where the understatement results from willful or reckless conduct, section 6694(b) imposes a penalty of the greater of $5,000 or 75 percent of the income the preparer derived. Willful or reckless conduct means a willful attempt to understate the liability, or a reckless or intentional disregard of rules and regulations.
Beyond the monetary penalties, the IRS can seek an injunction under IRC section 7407, a court order barring the preparer from practicing for a set period. That can be far more devastating than any fine, because it ends the practice. A preparer may also be required to reopen every comparable return prepared within the open statute of limitations, and a preparer found to have committed fraud can lose licensure entirely.
At the Tax Law Offices of David W. Klasing, we are happy to provide a reduced-rate initial consultation, which you can arrange by calling (800) 681-1295 or by clicking HERE to schedule online.
Who Counts as a “Tax Return Preparer”?
There are two categories. The first is preparers licensed to practice before the IRS, including CPAs, attorneys, Enrolled Agents, enrolled actuaries, and appraisers. The second is unenrolled preparers, who may prepare returns but cannot practice before the IRS.
IRC section 7701(a)(36) defines a preparer as any person who prepares for compensation, or who employs others to prepare for compensation, any return or claim for refund. Someone who prepares a return without compensation is not a preparer under the statute. Case law, however, sweeps in a person who received compensation for other services to the client even where no separate charge was made for preparing the return itself.
When is a Preparer Liable for Simple Mistakes Versus Fraud?
The severity of a preparer’s exposure tracks the severity of the conduct, and the line runs from negligence to willful fraud.
Negligence or simple mistakes: Preparers must meet the standards of section 6694(a) and IRS Circular 230. A minor oversight, such as omitting a Form 1099, transposing figures, or missing a recent change in the law, can be negligence if it understates the client’s tax. Section 6695 separately requires the preparer to sign the return, furnish the taxpayer a copy, and include a Preparer Tax Identification Number, and a preparer who fails those duties can be penalized for each failure. The due diligence penalties are steeper than most clients realize. For returns filed in 2026, a preparer who fails to meet the due diligence requirements for a refundable credit or for head of household status faces a penalty of $650 for each failure, with no cap. Because one return can claim the Earned Income Tax Credit, the Child Tax Credit, the American Opportunity Credit, and head of household status at once, a single return can expose the preparer to as much as $2,600. Repeated failures can bring revocation of e-file privileges. Pending legislation in Congress would raise these figures further, increasing the failure-to-sign penalty and lifting the due diligence penalty toward $1,000 per failure.
Willful or reckless conduct. Where a preparer intentionally overstates deductions, claims nonexistent dependents, or omits income, the conduct escalates under section 6694(b). In egregious cases, the Department of Justice or the FTB can pursue felony charges, most often under IRC section 7206(2), which criminalizes willfully aiding in the preparation of a false return. A conviction under section 7206(2) is a felony punishable by up to three years in prison and a fine of up to $100,000, or $500,000 for a corporation, together with the costs of prosecution.
Aiding and abetting fraud. If a preparer colludes with a client to file fraudulent returns, hide income, or inflate credits, both parties risk serious civil and criminal tax penalties under IRC sections 7201 and 7206 and parallel California tax fraud law. Preparers who orchestrate refund schemes often face multi-year prison terms, restitution, and permanent disbarment from practice. One point tends to shock preparers who assume no harm means no crime: under section 7206(2), no tax deficiency is required. The Ninth Circuit and others have held that a material misstatement can violate the statute whether or not the government actually lost revenue, and there is no requirement that the document even be signed under penalty of perjury.
Preparers Are Liable for More Than Income Tax Returns
Before 2007, section 6694 reached those who prepared income tax returns. Legislative revisions then broadened the statute, replacing “an income tax return preparer” with “a tax return preparer” and extending liability to any return of tax or any claim for refund. That expansion applies to gift tax returns on Form 709, estate and generation-skipping transfer tax returns on Form 706, and effectively to any federal return or refund claim. Preparers can also be penalized for failing to sign or exercise due diligence under section 6695, for breaching client confidentiality under section 6713, and for promoting abusive tax shelters under section 6700. Congress continues to expand this regime. The One Big Beautiful Bill Act, enacted in July 2025, added a new $1,000 penalty for each failure to meet due diligence requirements when advising on a COVID Employee Retention Credit document, a pointed reminder that preparer exposure now reaches well beyond the return itself.
The enforcement climate makes this more than academic. The Department of Justice pursues both civil injunctions and criminal prosecutions against dishonest preparers every filing season, working through United States Attorneys across the country and the tax enforcement components of the Criminal Division. Its longstanding civil injunction program has shut down hundreds of preparers and promoters over the past decade. The IRS has also intensified its focus on so-called ghost preparers, meaning those who prepare returns for a fee but refuse to sign them or supply a PTIN, and on preparer due diligence for refundable credits. Badges of fraud or repeated infractions can turn a civil examination into a criminal tax investigation, exposing the preparer to substantial fines, permanent loss of license, and in severe cases prison. It is sometimes said that the accountant’s focus is accuracy while the attorney’s focus is advocacy. Our office combines both.
When Should You File a Tax Preparer Complaint on Form 14157?
If your preparer’s conduct goes beyond a simple mistake, such as filing or altering your return without consent, inventing deductions, or routing your refund to their own account, you can formally complain to the IRS on Form 14157. A preparer who charges a fee based on the size of your refund, rather than a flat or hourly rate, is showing one of the clearer warning signs, because it gives them a direct incentive to inflate what you claim. The typical scenarios fall into two groups.
Where your return or refund was affected: falsified claims or altered filing statuses, expenses, or credits to inflate a refund; changes made to your return without notice or consent; or a refund misdirected to an account other than yours.
Where your return or refund was not affected: an improper or missing PTIN; a refusal to sign the return or provide you a copy; withholding your records until payment; or a preparer falsely claiming to be an Enrolled Agent or CPA who lacks the criminal tax exposure protections a real professional would understand.
What California Rules Apply to Your Tax Preparer?
California state regulates paid preparers who are not attorneys, CPAs, or Enrolled Agents through the California Tax Education Council. A CTEC-registered preparer must complete qualifying education, pass a background check, and maintain a $5,000 surety bond. That bond matters to you as a client, because where a preparer’s misconduct causes a loss, a claim against the bond is sometimes the only practical way to recover, given that many preparers lack the assets to satisfy a judgment. California also requires CTEC to publish disciplinary actions and bond claims against registered preparers, so checking a preparer’s standing before you hand over your records is worth the few minutes it takes. If a preparer who should be registered is not, that itself is a warning sign.
Your Tax Preparer Made a Mistake, What Should You Do?
First, bring the issue to the preparer. They may correct the return or reimburse penalties and interest if they concede fault; for repeated or serious errors, an amended return, filed on Form 1040-X, may be warranted, generally within three years of the original filing or two years of paying the tax, whichever is later. Second, review your engagement letter, which usually states your duty to supply complete and correct information but may also set out the preparer’s responsibility for errors. Third, confirm the error is not yours, because if you supplied inaccurate or incomplete information the fault may be partly yours, and if the mistake belongs to the preparer you can sometimes seek penalty abatement by showing good-faith reliance. Finally, consider further action, including a Form 14157 complaint to the IRS and, in serious cases, a report to the AICPA, the State Bar, or another professional body.
Can You Sue Your Tax Preparer for a Mistake?
Yes, if the preparer committed negligence or malpractice. In California, a professional negligence claim against a non-attorney preparer generally must be filed within two years under Code of Civil Procedure section 339. However, courts have sometimes held that the clock does not start until the taxing authority reaches a final determination on the underlying issue. California is also a comparative negligence jurisdiction, and because the client is often in the best position to catch an error, a full recovery is rare.
If a Preparer Makes a Mistake, Who Has to Pay?
Ordinarily you remain responsible for the additional tax, while the preparer can potentially be held liable for the penalties and interest. Often the economics leave small claims court as the only practical route against the preparer.
What Should You Do if Your Preparer Makes a Mistake?
Bring it to the preparer’s attention, and expect that an amended return is frequently warranted. Most reputable preparers will cover the penalties and interest caused by their own errors.
Contact the Tax Law Offices of David W. Klasing if Your Preparer’s Mistake Has Put You at Risk
At the Tax Law Offices of David W. Klasing, our dual-licensed Civil and Criminal Tax Attorneys and CPAs offer an integrated legal and accounting approach for both taxpayers and preparers caught in disputes arising from preparer errors. These controversies can escalate quickly, moving from a civil disagreement to felony-level criminal tax allegations, especially where badges of fraud surface. That is why having more than an accountant matters in these situations.
Our dual-licensed attorneys and CPAs deliver the deeper protection of the attorney-client privilege, keeping your disclosures confidential in the face of a potential criminal tax inquiry, a protection your original preparer cannot offer because the limited federal privilege for non-attorney preparers does not apply in criminal tax matters. If you suspect your preparer’s work, or your own conduct, produced questionable or fraudulent returns, we can guide you through a voluntary disclosure where appropriate, often averting criminal tax prosecution and reducing the related civil penalties. Should matters escalate to felony allegations, our criminal tax defense background allows us to build a defense aimed at preserving both your net worth and your liberty.
If you are a preparer who suspects you may have committed one of the offenses described above, you also need experienced counsel to protect your interests. We are happy to provide a reduced-rate initial consultation, which you can arrange by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 or by clicking HERE to schedule online.
