Misrepresented!

[kgtest]

Well, I would certainly find a new CPA, Golf Partner, Golf Course and Tee Time...in that order. Best of luck.

 

[Stormy Kromer]

Who owned the business that you sold and controlled everything when you sold it? you did.

 

[Stormy Kromer]

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 .

Move on.

 

[ERD50]

... 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. ...

The passing of his wife certainly could have contributed to some mistakes. He's grieving (maybe very deeply, even/especially? if it doesn't show), and that could lead to concentration gaps, missed opportunities, etc.

Of course, none of that changes the effect it had on you, you need to deal with the fallout, but it might help you emotionally to look at some explanations for what happened.

Which leads me to another point - I'm wary of doing business with friends/family. There certainly can be advantages to doing business with an individual, but there are also the downsides of not having a backup when problems arise, no one else to even answer the phone emails, etc.

... Should we sue him? Or move on .

Probably neither. As others have said, you really need to understand the true monetary damages (which is not the tax estimate delta). Making moves that resulted in higher taxes, if proven to be negligence on his part, maybe could be claimed (which may cost you more in lawyers fees/time that what you can get). Maybe money lost in liquidating more than you expected, and raising this year's tax bill, or other costs associated with that? But if those costs were just accelerated rather than eliminated, the damages will be less, and maybe not worth pursuing.

No way to know until you get it sorted out with the other CPA. But if there are definable damages, I suspect that other than asking that he return any fees you paid him for this apparently sub-standard work, I doubt that any other action will be worth the time/effort/costs. Maybe he will offer to reimburse you for more than that. But if not, and after considering the alternative, then yes - move on.

-ERD50

 

[MarieIG]

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

I had been wondering how much one could defer tax on earnings in an S Corp (which I thought was a pass-through).

 

[RobertTN]

Agree with several above. I do not understand what the damages are because you owe the IRS what you owe per the guidelines. If there are penalties and interest because between the original amount he told you and the new amount, there could possibly be a case. However, if this is your first 'offense' with underpayment, a person can typically get the penalty and interest waived by corresponding with the IRS.

 

[retire202052]

Just curious how old you and your wife are? Like many have said, you owe what you owe. It appears he didn't "steal" any money from you guys, just bad calculations.

From a philosophical view, if your in your late 60's, may be time to move on and try to enjoy yourselves. Life is short.

 

[sheehs1]

I had been wondering how much one could defer tax on earnings in an S Corp (which I thought was a pass-through).

I understood him to say it was from retained earnings when the company had been a C corp. Then it converted to an S corp. The retained earnings from the C-corp, if not distributed, stays on the Equity portion of the balance sheet seemingly forever or until sold.
Our company was a C-corp. We converted to an S corp back around 1992. We still have retained earnings showing on our balance sheet from when it was a C corp.
S-corps can retain earnings as well in an Accumulated Adjustments account(s) if profits are not 100% distributed (passed thru) to shareholders.

 

[sheehs1]

To Op. It's a shame the retained earnings and associated tax were not pointed out to you when you sold. I don't think a competent Account would have missed that when the sale was taking place. However, I doubt there is any standing to sue him. It was an "Estimate" although a poor one at that, assuming he was provided all the correct information to do the Estimate. Professionals make mistakes all the time.
Get a 2nd opinion. If it matches what you now owe, do not take the lawyer up on suing the accountant. More money in the lawyer's pocket.

 

[brett]

Have to agree about there being no real damages. Other than perhaps your expectations.

Can you point to any actual incurred monetary damages? Your tax liability has not changed notwithstanding the questionable advice. And...we only hear one side of the situation. There may be issues on how or in what manner your future plans were presented to the accountant.

As others have said I believe that your focus should be on finding a professional accountant in whom you have confidence.

Next step...understanding exactly what your tax horizon looks like and what you can do to reduce or postpone your tax burden.

After that...keep moving forward.

 

[FloridaWizard]

To me, the key questions are:
1. If you'd known the true tax liability ahead of time, would you still have sold?
2. Could the sale have been handled in a more tax-efficient way, had the true liability been known.

If the answers are 1. Yes and 2. No, move on. You have no case.
Anything else, you may have a case.