Professional Liability Insurance for Tax Preparers
Preparing taxes for private and public companies is a complex task requiring expert knowledge of the latest tax laws. Clients rely upon their tax preparers to ensure that they pay their necessary taxes – and only necessary taxes – in a timely manner.
Unfortunately, errors and omissions in tax preparation can occur. Clients become understandably upset if they discover they have unnecessarily paid too much in taxes. They become even more distressed if they face fines and penalties due to errors that result in underpaid taxes. And they can get downright hostile should a tax preparer fail to file taxes or amendments in a timely manner, resulting in penalties.
A large percentage of claims filed against accountants by their clients are related to dissatisfaction with tax preparation services. Fortunately, Professional Liability Insurance – also know as Errors & Omissions Insurance– is available and affordable for most tax preparers.
How PL Insurance Works
Professional Liability Insurance provides protection tax preparers need in the event a claim is made against them alleging damages due to their failure to perform tax services in a satisfactory manner. The PL Insurance policy typically covers, up to the policy limit, both the cost of defense and any monetary damages awarded to the claimant due to the tax preparer not performing up to the prevailing standard of care.
Professional Liability Insurance premiums are typically paid annually and cover a one-year term. The policies are written on a claims made and reported basis, so a claim must be made by the claimant and reported to the insurer within the policy year (or any extended reporting period) in order for coverage to be in effect.
Policies will typically cover work back to the earliest date of continuous PL insurance coverage. For example, if an insurance agent has maintained continuous PL insurance since 2002, then his or her current policy will cover any new claims brought against any work performed since the policy inception date in 2002. If the PL policy is cancelled or not renewed and continuous insurance ceases, then the tax preparer can lose coverage for all previous work unless prior acts coverage is secured on a new policy.
Typically, PL policies are written in increments of $1 million of aggregate limits, with deductibles available on a per-claim basis, usually starting at $1,000. Policies may exclude coverage for specific acts and services.
Finding Affordable Coverage
Virtually every real tax preparer needs Professional Liability Insurance. Potential damages can be great due to a claim that an error or omission in tax services resulted in a large financial loss to a client.
While premiums have been historically high, today's insurance rates for tax preparers can be surprisingly affordable. Most important, Professional Liability Insurance can provide for the legal representation you need to defend yourself against claims of alleged negligence as well as the financial resources necessary to pay any settlement or judgment against you.