Complicated taxes - CPA making mistakes

7 Replies

Curious what is acceptable.  Like many of you I have complicated taxes. I have 30+ properties, sales, purchases, multiple entities, different tax years, K-1's to send, k-1's received, W2 income, cap gains, cap losses, etc....

To keep things simple I will give an example of the type of thing that has happened on two recent tax returns:

1) It was an issue where an appraisal mattered.  Basis issue. I sent one appraisal and later got a better appraisal and sent that to CPA. They used worse one in rough draft.  At least $15k tax difference to me let's say.  Luckily I noticed.

2) Including property no longer owned in tax return. I assume they took the income from the year previous but we are not talking a trivial amount of money.  Let's call it $20k of income that I didn't really get. Luckily I noticed.

My CPA is not cheap so it's not like I am using someone based on cost. I am using a high level professional with a good reputation but I am concerned they are just too busy and the underlings don't get it done right.

For those that have complicated returns what is the accepted amount of material errors to see in a tax return?  Is one per year too many? I think so but want to make sure I am not being unreasonable.

What do you experts say?

Depends in the return and quality of information received. No excuse for a property still on the return after it was sold. 

The appraisal is a reasonable issue. I HATE duplicate information sent. If we're talking about a land allocation or a donated amount then it's important to clarify which one and make it very very clear it is an update to the information. If a client sent me two seemingly similar appraisal it could have seemed to be a duplicate. It's not reasonable to have to scour a 50+ page appraisal for a small difference. It should be made clear from the client the difference. Also they should be names very differently when sent.

A lot of factors in it. Seems like you're dissatisfied with them in general.

@Bob Smith

Mistakes happen to everyone in any business. What matters, in my opinion, is:

a. Is there a pattern of making mistakes regularly, as opposed to once in awhile?

b. What is your CPA's reaction - i.e. do they own up to their mistake(s)?

c. Are you confident that they have processes in place to prevent future mistakes? (Example: in my firm, we have two pairs of eyes on every substantial number before the return is released)

@Bob Smith Yikes - those both sound pretty major. In both cases, how did your CPA handle these errors? Was he embarrassed, flippant, angry? I think his attitude towards the errors will speak volumes as to whether or not you should continue with his services. 

I can't speak to any hard and fast rules about material errors (my tax business is deliberately and selectively very small), but I would absolutely agree that encountering a material error (especially one that should have been easily caught before you ever saw it) every year is too much. However, this is assuming that your records are clear and organized, and given to him in a timely manner, so that he's not rushing or confused about what you've presented him.

When I work on complex returns, I start with the headiest pieces first - the aspects that I know will need the most attention and will likely be under the most scrutiny from an audit perspective. Once I feel confident on the gnarly stuff (which often comes after talking through the details with the other pro in the office, and doing additional research to substantiate my work), I move on to the less complex pieces. 

Attention to detail is of utmost importance in this business, and assigning income to property you don't own or not substantiating basis for a disposition (or depreciation) is a red flag to me. 

It sounds like the errors were caught before filing, which is good. I like when my clients go over their returns with a fine tooth comb before I file! You mention that "underlings" may be doing some of the work. Do you think it's possible that you could negotiate that no one other than CPA work on your return (assuming you really do trust *his* work, and just not the work of his assistants)?

I'm curious to hear what others think, too.

@Bob Smith First off, kudos to you for reviewing the returns and catching the errors. Personally, I love when my clients double check the returns.

It sounds like you have a healthy amount of tax info and filings. In any case, mistakes are bound to happen, of course. Mistakes are one thing, but consistent mistakes are another.

Speaking from experience, it is much more likely to make a mistake if tax documents and other info are handed in haphazardly and late. If a client delivers detailed, timely, well-organized docs, there should be no reason or excuse for material errors such as the ones you described.

It could be a result of delegation, but even if that were the case, there should be a review process.

Just like the others who replied, I'm curious as to how your CPA reacted when you pointed out the errors.

At the end of the day it's about working with whomever you feel the most comfortable and who provides the most value for your hard-earned money. If neither of those apply, it's time to shop around!

@Bob Smith Mistakes do happen, and that is why it is important to review all the documents and draft of your returns with your CPA. #2 however, is unacceptable, in my opinion. 

Why would your CPA use any amounts for rental properties from the prior year? That's a huge no-no, regardless how busy they are.

I really appreciate all the replies.

The worker-bee CPA, who did the work, did not apologize or anything other than to say she would fix it and did so within a few hours.  Maybe that's why she is a worker-bee and not the owner of the company though!?

I haven't contacted the main CPA/company owner yet as I wanted to digest the situation and consider all of the thoughtful replies here. So thank you all. I'll contact him tomorrow. Hopefully I'll get a more apologetic answer from him.

Again, thank you all.

This is a pretty common issue that some firms seem to have figured out and others don’t - I think it’s more person by person. You find at some firms the staff have a lot of autonomy to prep and review returns with little or no review from the partners in the firm. There is a fine line here - the partner who you are paying the big bucks for should have a handle on and look at everything - if not what are you paying for? The fact of the matter is they usually never get called on it because 99% of clients don’t look at their returns - kudos to you for reviewing them. We are really good at review - we typically have internal accounting departments at our clients looking at our work and other big 4 firms looking at our work (sometimes the partners in the deal are big pension funds and institutional investors who all seem to use big 4). I think you have to find someone else - sounds like you are at a firm where the partner isn’t properly overseeing your account.

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