ChrisGCPA wrote:Are there instances where I would be liable for a clients penalties? I assume this situation would arise if I was grossly negligent to some degree and prepared the return incorrectly leading to penalty.
Of course, that's why we carry E&O insurance.
I wouldn't think it has to be gross negligence on the preparer/s / tax advisor's part.
What about if you did SALY for the extension and didn't ask for current year docs? Client files October 15th and has FTP penalty and interest. Client says: "I would have made a payment with the extension if you would have asked me."
The best thing you can do to mitigate the risk that penalty assessed to a client is "your fault" is to shift the liability. i.e. advise the client of risks in writing, make sure they understand all of the dynamics, and file it away. Any tax position on their return should be their decision, after weighing your advice.