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Will using a tax adviser absolve your penalty sins?

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in Small Business Tax,Small Business Tax Deduction Strategies

If the IRS audits your return, it can slap you with a back tax bill, interest and penalties. But you may be able to avoid the penalty portion if you can prove that you relied on the advice of a competent tax professional.

Although each case turns on its own merit, the general rule of thumb says you won’t have to pay the usual tax penalties, but you’re still liable for any underpayments.

Case in point: An Illinois taxpayer took an early 401(k) distribution but failed to report the appropriate 10 percent penalty tax on his return. He claimed that he was unsophisticated about tax matters and had relied on a tax professional to prepare his return. Since the taxpayer had acted in good faith, the Tax Court said he didn’t have to pay an accuracy-related penalty. (Glenn, TC Summary Opinion 2005-127)

On the other hand, you can’t expect to dodge tax liability altogether. The general rule is that the return you file is your obligation.

No late-filing forgiveness. The IRS and courts rarely give you a break on late-filing penalties when you blame your tax preparer for the tardiness. If you’re concerned about this, ask your tax preparer to give you the return to mail (or request a confirmation of the online filing). That way, you’ll know it went out on time.

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