When Can Taxpayers Rely on Professional Advice for IRS Penalty Abatement?

To begin to answer the question posed above, we must first clarify that taxpayers are typically presumed to own their own mistakes. That is especially true when taxpayers prepare their own tax returns, without the help of a CPA or other tax professional. 

Let’s say you did hire an accountant to prepare your federal tax return. You’re under the impression that you provided truthful and comprehensive information. However, months after you filed the return, the IRS contends that you underpaid your taxes and, therefore, assesses penalties. 

Could you get those penalties abated? Possibly—it depends on a number of factors, culminating in a decision of the taxpayer’s “good faith” in relying on a qualified tax professional.

Taxpayer’s Credentials

The education, experience, and overall knowledge of the taxpayer in this situation is relevant when determining the liability level of the tax professional. Courts scrutinize the credibility of the taxpayer to determine whether or not it is “reasonable” for the taxpayer to rely on the accountant or other tax professional. A taxpayer who owns and operates a small business, for example, will have a more difficult time convincing a court that they acted in “good faith” when relying on a tax professional’s advice than a blue collar worker with only a high school diploma. 

Three Requirements for Establishing ‘Reasonable Reliance’

Over the decades, case law has shaped the conditions needed for a taxpayer to successfully argue reasonable reliance on a tax professional. A noteworthy federal case decided by the Third Circuit of the United States Court of Appeals (Neonatology Assocs., P.A. v. Commissioner) laid out three fundamental requirements for reasonable reliance to exist: 

  1. The taxpayer offered relevant, truthful, and thorough information to the accountant or tax professional.
  2. The accountant or tax professional is “competent” and has the necessary expertise that would reasonably be expected of a tax professional. 
  3. The taxpayer actually acted according to the tax professional’s advice.

When is the Taxpayer, and NOT the Accountant, Responsible?

Again, these decisions are made by courts on a case-by-case basis. A taxpayer who knew, or should have known, that the tax professional was not competent or qualified is likely still subject to IRS penalties. Additionally, a taxpayer may not be able to claim reasonable reliance if the advice provided by the tax professional is “too good to be true.” Both of these conditions depend on the facts of a particular case. 

Be Safe and Call an Attorney

Ultimately, a taxpayer is only able to rely on his or her tax professional to a certain extent. Simply playing dumb might be an effective strategy to avoid IRS penalties, but the only way to know for sure is to contact experienced legal counsel. 

Weisberg Kainen Mark, PL has decades of experience resolving disputes between taxpayers and the IRS. Our team is prepared to protect your rights and position you for a brighter future. Reach out today to discuss your legal needs.

The following two tabs change content below.

Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

Latest posts by Weisberg Kainen Mark, PL (see all)