Tax Preparers: Examples of Errors & Omissions Claims

The following claim scenarios illustrate why Professional Liability Insurance is so important for tax professionals:

Scenario A: Social Security Income Omitted
  • A tax preparer omitted Social Security income from a client’s federal tax return. The IRS assessed a tax understatement penalty in the amount of $1,145.71, plus $279 in interest. The policy purchased through Target reimbursed the tax preparer $1,324.71 – the entire amount less the standard $100 policy retention.

Scenario B: Missed Filing Deadline
  • A tax preparer filed a client’s S Corporation tax return after the deadline. The IRS assessed a $2,730 late filing penalty and $14.17 in interest. The tax preparer’s policy from The Hartford covered the full amount, less the $100 retention.

Scenario C: Missing W2 Income
  • A client’s W2 income was mistakenly omitted by a tax preparer on her federal return. The result was $26,794 in additional tax owed, $1,670 in understatement penalty, and $279 in interest. The client paid the additional tax due as that was her obligation but the tax preparer’s policy reimbursed him for $2,025 (penalty & interest, less retention).

Claims examples are for descriptive purposes only. Please refer to the actual policy for exact coverage descriptions, terms and limits; exclusions may apply. It is impossible to state in the abstract whether a policy would provide coverage in any given situation.