I am oftentimes critical on this blog of other tax preparers and the mistakes I see made on the tax returns of new clients. Normally I take a “but by the grace of God go I” attitude towards other preparers’ mistakes; I only blog about the things that stand out as being “WTF?” moments.
And to be fair, I also blog about my own errors and omissions. This is one of those cases.
One time a few years ago, I was working with a new client and discovered a mistake on their prior-year Iowa tax return. The previous preparer had failed to give the client a deduction for contributions to an Iowa Section 529 Plan, even though the client made contributions and had provided that information to the preparer.
As a side note, this is one of the rare cases where I find a mistake on an old tax return that actually benefits the client. Usually I find no mistakes, and when I do find mistakes, it’s almost always something that would require the client to pay additional tax if they amended.
Anyway, the client was happy because I saved them about $800 in Iowa taxes by finding this omission. I prepared the amended Iowa return and we filed it.
A few weeks later, the client sent me a letter that they had gotten from Iowa. Iowa paid them $400, not $800. When I reviewed the letter, I realized I had made a mistake on the amended return.
The problem was on Line 26 of the Iowa Form 1040X, “overpayment previously received,” referring to the amount of refund the taxpayer had received on their original tax return.
I had put $0 on that line. The client had actually received a refund of $400 on their original return.
The state was right, I was wrong.
What really bothered me about this was, I reviewed Line 26. I know I did, because in my software, there’s a green checkmark next to the $0 on that line. In my software, when I double-click on a line item, it shows a green checkmark. In my procedures, that’s a sign that I have reviewed the line item and agree with the number.
I refunded the client the fee they had paid me, even though they said I didn’t need to. They were still happy that I had found them extra money, even though it was $400 instead of $800. But from my side of the fence, I was embarrassed about such a silly blunder.
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