Video: Damages Associated with Malpractice

In this lesson, Nick Palazzolo, CPA, breaks down the potential legal and financial repercussions faced by tax preparers in the event of malpractice. He explains the various types of damages that clients can seek, ranging from overpaid taxes that cannot be reclaimed, to penalties, interest, and the costs to correct returns incurred due to a preparer's mistakes. With clear examples, Nick outlines what consequential damages might look like, such as lost investment opportunities. He emphasizes the importance of diligence and adherence to professional standards to minimize malpractice risks and informs about the rights taxpayers have when it comes to seeking remedies for losses experienced due to negligence or misconduct by their tax preparer.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Damages associated with malpractice. Let's talk about the consequences of these damages. Well, tax return preparation malpractice can lead to various types of damages for which a tax preparer may be held liable. Understanding these components is going to be crucial. And what are these? Well, first we have taxes. Although the responsibility of filing tax returns and paying taxes lies with the taxpayer, the tax practitioner, also known as the tax preparer, may be held liable for overpaid taxes that cannot be reclaimed through an amended return in certain situations. So that's another one. I'm not really in our concern to worry about specific examples here how this would happen, but if somehow the client overpaid their taxes and there's no way for them to get that back, that would be malpractice. That would be up to the tax preparer to compensate them for those damages. What about penalties? If penalties are imposed due to mistakes on returns, courts may award damages to the affected taxpayer. So interest, taxpayers may be awarded damages equal to the interest owed if they have suffered actual damages related to the interest charged on their tax liability due to the preparer's negligence. Well, any costs incurred? Well, costs incurred to correct tax returns. Damages may also include fees that are required to amend tax returns or challenge assessed penalties resulting from the tax preparer's errors. Basically, just whatever you did wrong, any damages that resulted from what you did wrong, you're going to be on the hook for. Now, consequential damages. These damages encompass lost investment or income opportunities for taxpayers as a consequence of the tax preparer's mistake. You've got to be diligent in your work, adhere to these standards to make sure you minimize your risk of malpractice. Likewise, taxpayers should

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Federal Tax Procedures

Module: 2 Concepts, 35 Videos

Common Law Duties and Liabilities to Clients and Third Parties Overview

1:52

Introduction to Common Law Duties and Liabilities to Clients and Third Parties

1:35

Legal Liabilities of Tax Preparers

7:08

Example of a Breach of Contract