Blooper reel: Tiny but important mistakes on returns

September 29, 2022 9:00 AM

In the real world, a slip of the pen or a misaimed keystroke or some other tiny goof often doesn't spell disaster, but just quick do-over.

That's in the real world. Can there be any tiny errors on returns?

"A small error in a Social Security Number can delay if not stop a refund from being issued. A bank account error will delay refunds for a long time," said Scott Kadrlik, a CPA and managing partner at Meuwissen, Flygare, Kadrlik & Associates, in Eden Prairie, Minnesota.

Here's a half dozen of the smallest yet most important mistakes preparers have seen on returns.

Missing deductions

"Missing deductions, usually on a DIY return," said Dan Henn, a CPA in Rockledge, Florida. "Things like missing insurance, taxes or depreciation on a rental, depreciation or home office on self-employed business, or sales tax deduction as an itemized deduction."

Marital status

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"Someone filing a return [married filing jointly] when it was supposed to be [married filing single]," said Morris Armstrong, an Enrolled Agent and registered investment advisor in Cheshire, Connecticut. "It was done at the last minute and couldn't be undone. The couple was going through a divorce and the husband wanted nothing to do with the wife's return. More an ego issue than anything else. [The return] was done at a big-box store and I'm not sure that the preparer did the required due diligence and ever met the husband or obtained the signature."

Software trying to 'help'

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"We're so used to filling in screens in our tax prep software that sometimes you can be surprised what emerges," said Mary Kay Foss, a CPA in Walnut Creek, California. She cites when there was a penalty for not having medical insurance, "The software had you check a box if you did have insurance and would calculate a penalty if you did not. The surprise was a big number increasing the tax due when you were sure that you had put figures in all the appropriate boxes. This leads me to the thought that often when you're preparing a return, you're only focused on the input and not the finished product."

"The computer program always thinks it's smarter than we are," Foss added, "and sometimes 'helping' causes a problem we don't know where to search for."

Multiple returns

IRS Form 1040

Michael Nagle/Bloomberg

"Once a client mailed two separate years of tax returns in the same envelope to the IRS. As expected, the returns weren't processed correctly," said James McGrory, a CPA and tax partner at Top 25 Firm Armanino LLP in Philadelphia. "It took several months and significant professional time to unravel this quagmire."

Pass-through problems

Gail Rosen, a CPA in Martinsville, New Jersey, finds that many new clients don't know about the pass-through entity taxes, a tax benefit to business owners in certain states. "To participate in PTET, the election must be made in a timely manner," she said, "and we are finding that many missed the election for their 2021 tax returns."

Addressing the problem

"Lesson from early in my career: Always doublecheck the client's address," said Benjamin Bohlmann, a CPA and partner in the Miami office of Top 100 Firm Friedman (which merged into Marcum at the beginning of September). "We had spent tons of time on technical review, analytical comparisons, diagnostic comments and the like. But none of us thought to look at the client's address. The client's refund and various correspondence went to his sister's home."

"My smallest and most critical error was putting the wrong ZIP code in, which changed the destination city on the taxpayer's address," Armstrong admitted. "It took a long time to get the refund check! That was 15 years ago, and the client is still a client."