Bad accounting advice and bookkeeping errors.

Accountants do much more than file returns. This page covers three kinds of work that can go wrong:

• Advice about taxes, transactions, or how to set up or run a business
• Bookkeeping: recording transactions, reconciling accounts, and keeping the records other work depends on
• Payroll tax work: withholding, depositing, and reporting employment taxes

Arizona’s accountancy law, for example, lists bookkeeping, financial planning, tax services, and consulting services among the accounting services commonly performed by accountants (A.R.S. § 32-701).

Advice can turn out wrong for reasons no one could have prevented: the law changed, the facts changed, or a reasonable position was challenged. That isn’t malpractice on its own.

A concern is different when the advice missed something a careful professional would have caught. Federal rules require attorneys, CPAs, enrolled agents, and others who practice before the IRS to exercise due diligence in determining the correctness of what they tell clients about IRS matters (31 C.F.R. § 10.22).

Reliance on an advisor can also matter to the IRS. For accuracy-related penalties, the IRS says it may consider whether you gave your advisor all needed information and whether the advisor was competent and experienced with the tax situation (IRS: Penalty relief for reasonable cause).

Bookkeeping mistakes tend to spread. Wrong entries can flow into tax returns, loan applications, and financial statements. Concerns often involve:

• Transactions recorded in the wrong period or the wrong account
• Accounts that weren’t reconciled, hiding errors or missing money
• Business and personal expenses mixed together
• Records that weren’t kept, making it hard to support a tax return later

Bookkeepers aren’t always CPAs. That can affect which standards apply and whether a licensing board has any role, but it doesn’t by itself rule out a claim. An attorney licensed in your state can explain how your state treats it.

Payroll taxes need special attention, because the IRS looks to the employer. The IRS says “the employer is ultimately responsible for the deposit and payment of federal tax liabilities,” even when a third party makes the deposits, and that the employer “may also be held personally liable for certain unpaid federal taxes” (IRS: Outsourcing payroll duties).

The IRS suggests that employers who outsource payroll:

• Register on the Electronic Federal Tax Payment System (EFTPS) to get their own PIN and check that payments are being made
• Treat the first missed or late payment by a provider as a red flag
• Keep their own address of record with the IRS rather than changing it to the provider’s

The IRS also lists a preparer’s failure to remit employment tax funds, or to prepare employment tax returns accurately and on time, as misconduct you can report (IRS: Tax return preparer misconduct).

The IRS can assess the Trust Fund Recovery Penalty against a person who is responsible for collecting or paying withheld income and employment taxes and willfully fails to do so. Responsible persons can include officers, directors, and others with authority over the funds, and also payroll service providers and responsible people within them (IRS: Trust Fund Recovery Penalty).

If the IRS decides you’re a responsible person, it sends a letter proposing the penalty. The IRS says you have 60 days from the date of the letter (75 days if it’s addressed to you outside the United States) to appeal, and that if you don’t respond, it will assess the penalty.

• What the accountant, bookkeeper, or payroll service agreed to do, in an engagement letter, service agreement, or emails
• What the advice actually said, and whether it was in writing
• What information you gave them, and when
• What went wrong and what it cost: penalties and interest, the cost of rebuilding the books, or losses from a decision made on the advice
• Timing, since deadlines differ by state and by the kind of claim

• Engagement letters or service agreements
• Written advice, memos, and emails, including your questions and their answers
• General ledgers, bank reconciliations, and reports the bookkeeper gave you
• Payroll registers, filed employment tax returns, and your EFTPS payment history
• IRS and state notices about payroll or income taxes
• Invoices and proof of what you paid the provider, including tax funds you sent them

The IRS says employers registered on EFTPS have online access to their payment history for 16 months (IRS), so download it soon. Keep everything, and share it with your own attorney, not with us.

We wrote this page from the primary sources below and checked it against them on September 25, 2026.

• IRS, Outsourcing payroll duties: employer responsibility and EFTPS
• IRS, Employment taxes and the Trust Fund Recovery Penalty: responsible persons and the appeal period
• IRS, Tax return preparer misconduct: employment tax violations
• IRS, Penalty relief for reasonable cause: reliance on a tax advisor
• 31 C.F.R. § 10.3: who may practice before the IRS
• 31 C.F.R. § 10.22: due diligence in representations to clients
• A.R.S. § 32-701: accounting services definition
• Fla. Stat. § 473.302(8)(b): tax, management advisory, and consulting services by CPAs

We are not attorneys, and this page is not legal advice. Laws change and differ from state to state. If anything here is out of date or wrong, email support@malpracticeattorneys.com with the page name, and we’ll review it and update the page.