If your tax preparer made a mistake, the IRS still bills you for any extra tax, and usually for the penalty and interest too. Whether the preparer reimburses you depends on your engagement letter and on what caused the error. The practical fix is an amended return, filed quickly, with the preparer covering what their error added.
Most people find out a tax preparer made a mistake a year or more after filing, usually from an IRS notice, and by then interest has been running. This guide explains who is liable, which penalties fall on the preparer, how the IRS calculates the extra charges in 2026, what to do once you find the error, and how to report a preparer when the problem is more than an honest slip.
The IRS treats the person who signs the return as responsible for it. Its penalty relief guidance says, "You're generally responsible for complying with tax law even if someone else handles your taxes" (IRS, penalty relief for reasonable cause). The underlying tax stays your liability. If income was left off, you owed that tax from the start, and the error only delayed the bill.
Penalties and interest are where the split happens. The table shows how the costs usually fall:
| Cost item | Who the IRS bills | Who may ultimately bear it |
|---|---|---|
| Additional tax owed | You | You, since it was always owed |
| Accuracy-related penalty | You | The preparer, if your engagement terms or their policy cover their errors |
| Interest on the tax and penalty | You | Often you; some preparers reimburse it |
| Fee for the amended return | You (paid to the preparer) | The preparer, if they agree to correct their own error at no charge |
| Preparer penalty under IRC 6694 | The preparer | The preparer only |
The IRS can also penalize the preparer directly. For an understatement caused by an unreasonable position, the preparer penalty "is $1,000 or 50% (whichever is greater) of the tax preparer's income to prepare the tax return or claim," and it rises to "$5,000 or 75%" for willful or reckless conduct (IRS, tax preparer penalties). Separate penalties under IRC 6695 apply when a preparer fails to sign the return, include a PTIN, or give you a copy. For returns filed in 2025, the IRS lists each of these at $60 per failure, and $635 per failure for not meeting due diligence rules on credits such as the earned income tax credit; the amounts are adjusted for inflation each year. These penalties go to the preparer, and they do nothing to reduce what you owe.
Your written agreement decides most of the rest. A clear accounting engagement letter states the scope of work and what happens if the firm makes an error. Many budget services have no engagement letter at all, or one that limits their liability to the fee you paid.
Sometimes. The IRS does consider reliance on a professional when it reviews accuracy-related penalties. Its guidance says, "If you relied on a tax advisor, we may consider: Whether you provided all needed information" and "Whether your advisor was competent and experienced with the tax situation" (IRS, penalty relief for reasonable cause).
That test cuts against a rushed, low-fee return in two ways. First, you need to show you handed over every document, which is hard if the preparer never asked for them. Second, you need to show the preparer was competent for your situation, which is hard if you picked a seasonal storefront for a return with a business, rentals and multi-state income. The same page lists "Mistakes and oversights" among the reasons that do not generally qualify for relief from filing and payment penalties, although it adds that reasonable cause may apply to a mistake when other facts show you tried to comply. For the accuracy-related penalty itself, the IRS says it may remove or reduce the penalty if you "acted in good faith and can show reasonable cause" (IRS, accuracy-related penalty).
If you plan to request relief after paying, our guide to requesting penalty abatement with IRS Form 843 walks through the form and the supporting facts the IRS expects.
Suppose a freelancer's preparer leaves a Form 1099-NEC off the return. The omitted income adds $6,000 of tax, and the correct total tax for the year is $18,000.
For individuals, a substantial understatement exists if "you understate your tax liability by 10% of the tax required to be shown on your tax return or $5,000, whichever is greater" (IRS, accuracy-related penalty). Ten percent of $18,000 is $1,800, so the threshold is $5,000. The $6,000 understatement exceeds it, and the penalty is "20% of the portion of the underpayment of tax."
| Line | Amount |
|---|---|
| Additional tax from the missed 1099 | $6,000 |
| Accuracy-related penalty (20% x $6,000) | $1,200 |
| Interest on the tax for one year at 7%, compounded daily (assumed rate) | about $435 |
| Total the IRS bills | about $7,635 |
| Of which caused purely by the error | about $1,635, plus any amended-return fee |
The 7% figure is the IRS underpayment rate for individuals in the fourth quarter of 2026 (IRS, quarterly interest rates). The rate is reset each quarter, and it was 6% in the second quarter of 2026, so the real charge depends on the dates involved. Interest also runs on the penalty, and the IRS notes that "By law we cannot remove or reduce interest unless the penalty is removed or reduced."
Now change one fact. If the correct tax were $30,000 and the understatement $4,000, the threshold would still be $5,000 and the substantial understatement test would not be met. The negligence branch can still apply. The IRS lists "Not including income on your tax return that was shown in an information return, like income reported on Form 1099" as an example of negligence. Matching 1099 data against returns is also how many people first learn of the error, usually through an IRS CP2000 notice proposing changes to the return.
Work through these steps in order. Speed matters because interest keeps accruing on any unpaid tax.
The penalty table shows one error. A rushed or thinly reviewed return tends to produce several smaller costs that never show up as a single bill.
A fast, low-fee preparer often fills in what the client hands over and asks few follow-up questions. That is how deductions get missed. Business owners lose mileage, software, contractor costs, home office expenses and equipment write-offs. Landlords lose repairs, management fees and depreciation details. Our list of tax deductions for 1099 contractors shows how many items depend on records a preparer has to request.
The One Big Beautiful Bill Act added more items to check. Under IRS guidance, from 2025 through 2028 eligible workers may deduct qualified tips up to $25,000 a year, qualified overtime pay up to $12,500 ($25,000 for joint filers), and interest on a qualifying personal vehicle loan up to $10,000, and people age 65 and older may claim an additional $6,000 deduction (IRS, deductions for working Americans and seniors). Each has eligibility rules and income phase-outs, so a preparer who skips the intake questions can leave money behind on a 2026 return.
When a preparer files straight from unreviewed books, errors in loans, payroll, owner draws or misposted income carry into the return and then into next year's opening balances. Fixing them later takes more hours than reviewing them first. Our bookkeeping cleanup before tax season checklist covers the reconciliations to finish before any return is prepared.
The IRS warns that paid preparers "must sign and include a valid Preparer Tax Identification Number (PTIN) on every tax return they prepare," and that a ghost preparer "prepares a return but refuses to sign it and/or refuses to include a PTIN." In that case, the IRS says, "the taxpayer is legally responsible for what is filed" (IRS, make a complaint about a tax return preparer). An unsigned return also means there is no one on record to answer a notice or prepare the amendment. Some budget services stop helping once the return is submitted.
A return-only engagement looks only backward. It rarely covers quarterly estimated tax payments, owner pay, entity choice or retirement contributions, so the same underpayment penalties and missed savings repeat the following year.
Errors are less likely, and cheaper to fix, on a simple return: one W-2, the standard deduction, no business or rental income, and no notices from prior years. Risk rises with each extra moving part, such as 1099 income, rental property, stock sales, multiple states, or a business entity. Our overview of common small-business tax filing mistakes shows where those returns usually go wrong.
For typical fee ranges by return type, see how much it costs to prepare taxes. For the difference in training and representation rights between preparers, see CPA vs tax preparer.
Settle these points in writing before the work starts:
Written answers to these points give you something to rely on if an error turns up later.
Is a tax preparer liable for mistakes on my return? The IRS holds you responsible for the tax, and it bills penalties and interest to you. A preparer may reimburse penalties caused by their error under their engagement terms, and the IRS can separately penalize preparers for understatements under IRC 6694.
Can I get a penalty removed because my tax preparer made a mistake? Possibly. For accuracy-related penalties, the IRS considers whether you gave the advisor all needed information and whether the advisor was competent for your situation. A mistake on its own is usually not enough; you need to show good faith and reasonable reliance.
How long do I have to amend a return after a preparer error? To claim a refund, you generally have 3 years from the date you filed the original return or 2 years from the date you paid the tax, whichever is later. If the error means you owe more, amend as soon as you find it to limit interest.
What should I do if my preparer refuses to fix the error? File the amended return with another preparer, pay the additional tax, and keep the correspondence for any dispute over reimbursement. If the preparer committed fraud or misconduct, report it to the IRS on Form 14157, and add Form 14157-A if they changed your return or misdirected your refund without consent.
Who pays the interest when a tax preparer made a mistake? The IRS charges interest to you on any unpaid tax and on penalties. Some preparers reimburse interest caused by their error, but many treat it as part of the tax you would have owed anyway.
Madras Accountancy provides tax preparation, bookkeeping review and tax planning support for businesses, landlords and independent contractors, including help correcting returns filed elsewhere. To have a return reviewed or to plan the next filing season, contact our team.
The section 4960 excise tax is 21% of nonprofit pay over $1M. From 2026 it covers all employees. See the medical carve-outs, Form 4720 and a worked example.
The paid family and medical leave tax credit is permanent from 2026. See the 12.5% to 25% rates, the premium option, the 6-month rule and how Form 8994 works.
Opportunity zones become permanent in 2027 under the One Big Beautiful Bill. See the new deferral, rural bonus, and the 2026 handoff.
