Misrepresented!

[Monterey298sc]

7 months ago I closed and sold my business property’s to retire. For the last 7 months our accountant has told us we need owe 224,000 in taxes. 3 weeks ago he calls us in and says he made a mistake and now it’s 275,000. Today he called us in and said he neglected to account for retained earnings from our C corp that we changed to a S corp 13 years ago. He also 7 months ago said he should have told us to keep the money in the corporation to reduce the taxes from the retained earnings. Now he says we owe 500,000 on April 18th.

We have already called our attorney who of course wants us to sue. He also owns his own accounting firm . He will be reviewing all our accountants filing for last year 3 years , , we HAVE NOT filed yet for 2022 . I don’t have confidence he is correct and now have to pay someone else to check his work. My wife and I are devastated, we counted on that money in our retirement calculations. All he said is I’m sorry! We are looking to sell assets to pay what we were told we did not have to pay. Yes I have all copies and emails from .

This accountant is a casual friend and we have played golf together, his wife that passed 4 months ago was my wife very good friend. This is going to change what we thought our retirement was going to be, we have to now cut our travel ect.

Should we sue him? Or move on .

 

[Car-Guy]

My first thoughts are, is he right (this time) and was it a honest mistake, incompetence, or something else.. Then I'd decide what to do... But that's me.

 

[aja8888]

Suing him may not get you anywhere at this point in time. I would have the taxes redone by a reputable CPA and not pay him for the work he (your casual friend) has done. I'd tell him that up front that you can't trust his numbers do to all the uncertainty he is creating.

 

[badatmath]

Not sure what suing him will accomplish?

 

[youbet]

When you know what you actually owe, you'll know what to do. Until then, it's mostly hypothetical.

 

[rodi]

I agree with the others that you need a second opinion on your tax liability. You owe the IRS what you owe the IRS - what is unsettling is the CPA keeps coming up with different numbers... so how do you know what the real number is.

You can't get back any tax liability if you sue... you owe what you owe.. You just need to figure out what that actually is.

When the dust settles you might be able to report him to his state's licensing board. Here in California they review complaints and can sanction or suspend the CPA license. That would help others avoid this person's mistakes.

 

[Monterey298sc]

I agree with the others that you need a second opinion on your tax liability. You owe the IRS what you owe the IRS - what is unsettling is the CPA keeps coming up with different numbers... so how do you know what the real number is.

You can't get back any tax liability if you sue... you owe what you owe.. You just need to figure out what that actually is.

When the dust settles you might be able to report him to his state's licensing board. Here in California they review complaints and can sanction or suspend the CPA license. That would help others avoid this person's mistakes.

I said that to his face today. How can I ever trust your numbers.! . We are going tomorrow to our attorney/accountant who was involved with the sale of the properties. He said we may need to sue .

 

[socca]

I was responsible for terminating a couple of irrevocable trusts quite a few years ago. I got a second opinion on the tax consequences because bad advice might have led to a nasty surprise (and angry relatives). This was just a form of insurance.

The tax pros are busy this time of year. You might need to wait until after April 18th to get a second opinion.

 

[OldShooter]

Eat the elephant a bite at a time. Sort out your tax liability and get that settled. That sounds like it will be plenty enough to do. When you're done with that there will be time to deal with any lawsuit questions. Charging off simultaneously in all directions is rarely a good idea.

 

[pb4uski]

I said that to his face today. How can I ever trust your numbers.! . We are going tomorrow to our attorney/accountant who was involved with the sale of the properties. He said we may need to sue .

I'm just not sure what sueing is going to accomplish. It's not like the accountant or his malpractice insurer are going to pay you the difference between the $500k that you think you owe and the $224k that he was previously telling you.

If you sue you may well get something out of it but after your attorney's fees I'm not sure what you'll net given the stress and aggrivation of filing suit and seeing it through over a number of years.

Had you previously paid $224k and now you need to come up with another $276k?

You should at least be able to get reimbursed for any underpayment penalties and perhaps interest in excess of what you earned by having the funds invested.

 

[Monterey298sc]

I'm just not sure what sueing is going to accomplish. It's not like the accountant or his malpractice insurer are going to pay you the difference between the $500k that you think you owe and the $224k that he was previously telling you.

If you sue you may well get something out of it but after your attorney's fees I'm not sure what you'll net given the stress and aggrivation of filing suit and seeing it through over a number of years.

Had you previously paid $224k and now you need to come up with another $276k?

You should at least be able to get reimbursed for any underpayment penalties and perhaps interest in excess of what you earned by having the funds invested.

No, we closed in June , I think paid him then to do a tax liability analysis to tell us what we will owe this April 18. I have not filed to IRS yet, he just finished today and reviewed. Then he told us we now owe 498,000 on April 18. That is 225,000 more than he told us 3 weeks ago.

 

[MarieIG]

What are your monetary damages, i.e. what is the difference between what you will be paying the IRS; and what you would have paid the IRS had no mistakes been made?

 

[Gallaher]

I don’t know if suing does much other than make boat payments for attorneys. But, if you need to go that route, isn’t the account insured for such errors? It’s just business.

 

[nhcycling]

Get a CPA who specializes in taxes to do another assessment to see what you really owe. What you owe is what you owe to the IRS regardless. I don’t know what you get if sue him. Is he a CPA
that specializes in taxes? Was this an honest mistake? Why did the number change drastically? Was there information missing that was later found? Was he just doing his best but not really the right person for the job?

 

[Jerry1]

The area where you might be able to recover on is his advice in winding down the business. If he told you to do X (the handling of retained earnings) and now he realizes that doing Y would have changed the taxes you owe, that would be where there was malpractice. I AM NOT AN ATTORNEY, but that’s where I see his liability. I also see a very slim chance that maybe you can redo the unwinding of the business by filing amended returns but that’s a long shot. Worth looking into though.

I’m also concerned about your moving into retirement. No doubt that $250K difference is a lot of money, but you characterized that as significantly changing your retirement. If that’s true, it feels like maybe you were running into retirement without enough cushion. Hopefully, you’re just upset (rightfully so) and things will look better once you’ve calmed down and revisit your budget.

 

[LARS]

7 months ago I closed and sold my business property’s to retire. For the last 7 months our accountant has told us we need owe 224,000 in taxes. 3 weeks ago he calls us in and says he made a mistake and now it’s 275,000. Today he called us in and said he neglected to account for retained earnings from our C corp that we changed to a S corp 13 years ago. He also 7 months ago said he should have told us to keep the money in the corporation to reduce the taxes from the retained earnings. Now he says we owe 500,000 on April 18th.



We have already called our attorney who of course wants us to sue. He also owns his own accounting firm . He will be reviewing all our accountants filing for last year 3 years , , we HAVE NOT filed yet for 2022 . I don’t have confidence he is correct and now have to pay someone else to check his work. My wife and I are devastated, we counted on that money in our retirement calculations. All he said is I’m sorry! We are looking to sell assets to pay what we were told we did not have to pay. Yes I have all copies and emails from .



This accountant is a casual friend and we have played golf together, his wife that passed 4 months ago was my wife very good friend. This is going to change what we thought our retirement was going to be, we have to now cut our travel ect.



Should we sue him? Or move on .

What am I missing? The money you owe is to the IRS, no?

How does suing your accountant make that problem go away?

And, surprise, surprise, a lawyer tells you to sue. That’s a lawyer I would run from as quickly as the accountant.

 

[Ronstar]

Suing him may not get you anywhere at this point in time. I would have the taxes redone by a reputable CPA and not pay him for the work he (your casual friend) has done. I'd tell him that up front that you can't trust his numbers do to all the uncertainty he is creating.

+1

 

[pb4uski]

No, we closed in June , I think paid him then to do a tax liability analysis to tell us what we will owe this April 18. I have not filed to IRS yet, he just finished today and reviewed. Then he told us we now owe 498,000 on April 18. That is 225,000 more than he told us 3 weeks ago.

But did you make estimated payments in 2022 for what you thought that you would owe when you file your 2022 tax return in early 2023?

 

[pb4uski]

What are your monetary damages, i.e. what is the difference between what you will be paying the IRS; and what you would have paid the IRS had no mistakes been made?

No. The difference between what he actually owes and what he thought he would owe is NOT monetary damages. IOW, the accountant's incompetence didn't cause his tax to go up... if he had a competent accountant it would have been $498k the whole time... back in 2022 and now.

 

[Gumby]

I'm having difficulty seeing a theory of damages for any case against the accountant. You owe the IRS whatever you owe the IRS, regardless of what the accountant said three weeks ago. If you took action specifically in reliance on his statement of three weeks ago and that has now harmed you, that would be different and you may have a claim for damages. Sadly, however, dashed hopes are unlikely to lead to a recovery.

What are your monetary damages, i.e. what is the difference between what you will be paying the IRS; and what you would have paid the IRS had no mistakes been made?

No. The difference between what he actually owes and what he thought he would owe is NOT monetary damages. IOW, the accountant's incompetence didn't cause his tax to go up... if he had a competent accountant it would have been $498k the whole time... back in 2022 and now.

I think MarieIG was saying the exact same thing as I am. There probably are no damages.

 

[Jerry1]

No. The difference between what he actually owes and what he thought he would owe is NOT monetary damages. IOW, the accountant's incompetence didn't cause his tax to go up... if he had a competent accountant it would have been $498k the whole time... back in 2022 and now.

That’s true, but isn’t the CPA negligent for not realizing that he could have handled the dissolution of the company in a way as to save on taxes. In this case by handling the retained earnings differently. So, instead of his taxes being $498K (under the current situation), they could have been much less - say $298K. In that case isn’t the CPA negligent to the tune of $200K? Plus, refunding of any of his fees and court costs.

 

[Gumby]

That’s true, but isn’t the CPA negligent for not realizing that he could have handled the dissolution of the company in a way as to save on taxes. In this case by handling the retained earnings differently. So, instead of his taxes being $498K (under the current situation), they could have been much less - say $298K. In that case isn’t the CPA negligent to the tune of $200K? Plus, refunding of any of his fees and court costs.

Possibly. If there were a more tax efficient way to handle the dissolution of the company and a CPA possessing the ordinary knowledge and skill demanded of someone in his profession would have known that, then perhaps he was negligent and damages may be found. But merely changing the number owed from the number stated three weeks ago is unlikely to support an action for damages.

 

[pb4uski]

That’s true, but isn’t the CPA negligent for not realizing that he could have handled the dissolution of the company in a way as to save on taxes. In this case by handling the retained earnings differently. So, instead of his taxes being $498K (under the current situation), they could have been much less - say $298K. In that case isn’t the CPA negligent to the tune of $200K? Plus, refunding of any of his fees and court costs.

It is very hard to know without knowing the details and even then, I'm not a tax guy but from the OP wrote it sounds like a miscalculation of the taxes and perhaps that the OP's CPA neglected to consider something that he should have when he did the estimate in 2022.

The first part, where the OP said "said he neglected to account for retained earnings from our C corp that we changed to a S corp 13 years ago"... that sounds to me like perhaps when the CPA calculated the estimated taxes on the sale that he missed including the retained earnings in his tax calculation.

On the second part where the OP said "He also 7 months ago said he should have told us to keep the money in the corporation to reduce the taxes from the retained earnings." sounds like poor advice, but did it just accelerate taxes that would have ben due at sometime in the future anyway? Unclear.

 

[Jerry1]

But merely changing the number owed from the number stated three weeks ago is unlikely to support an action for damages.

I agree with that. As infuriating as it must have been to get such a big swing in the estimate of tax due, there’s nothing actionable there.

 

[Jerry1]

On the second part where the OP said "He also 7 months ago said he should have told us to keep the money in the corporation to reduce the taxes from the retained earnings." sounds like poor advice, but did it just accelerate taxes that would have ben due at sometime in the future anyway? Unclear.

Yeah, I was wondering about that. If the other alternative would have just deferred the taxes, it would be much harder to show damages.