Mixup on direct withhdrawl

[TaxmannEA]

Somehow we entered one TPs bank account information on another person's return. The money was taken out of the first client's bank account in error. How do we fix this? Do we call the bank or notify IRS? First client is not happy.

[jklcpa]

Has the incorrect client with money withdrawn contacted their bank? That is a start, because that bank should have refused if the name IRS was using didn't match the account information.

Next, below is a link to an IRS page for payment options, and at the bottom is a section for cancellations, errors & questions, and that section contains a phone number that may have someone to provide additional guidance. I do know that with errors such as this that involve direct deposits of refunds, the IRS clearly states that it takes no responsibility for incorrect information supplied to the agency by taxpayer or preparer.
https://www.irs.gov/payments/pay-taxes-by-electronic-funds-withdrawal

At a minimum, your firm should pay or share in any late payment penalties and the amount charged for the invalid returned payment (like the returned/bounced check fee).

Edited October 19, 2024 by jklcpa
moved portion of comment to separate topic

[kathyc2]

So, IRS has their money?  Why not pay client that the account was dinged the amount plus an extra amount for the error?  Then have client who should have paid IRS pay you.

 

[jklcpa]

30 minutes ago, kathyc2 said:

So, IRS has their money?  Why not pay client that the account was dinged the amount plus an extra amount for the error?  Then have client who should have paid IRS pay you.

 

That would potentially solve the penalty issue, and while it may not be an ethical violation to take the client's funds in payment of their tax bill like it is for preparers to negotiate deposits of refunds, I think the client that should have paid would be suspicious and would want proof that the taxes were actually paid if their payment was to the preparer and not the IRS. Plus, the preparing firm shouldn't want its funds mixed up with those of clients in any way, and there's no way for correct client to pay harmed client directly without divulging harmed client's name because that would be an ethical violation.  Either way, both clients will be unhappy no matter what the solution is.

Hopefully for the OP, the disgruntled client wasn't angry enough to contact IRS with a complaint of preparer error, and if they did, that the agency would see this as an innocent mistake, but we don't know that because we are supposed to be safeguarding information like this.

 

[Abby Normal]

On 10/17/2024 at 12:48 PM, TaxmannEA said:

Somehow we entered one TPs bank account information on another person's return. The money was taken out of the first client's bank account in error. How do we fix this? Do we call the bank or notify IRS? First client is not happy.

You should immediately reimburse the first client and then collect the money from the other client. It was your mistake.

 

Edited October 19, 2024 by jklcpa
moved portion of comment to separate topic

[jiji778]

You should definitely refund the first client right away and then get the money from the second client. It was your mistake, so it's on you to fix.

Edited October 19, 2024 by jklcpa
moved portion of comment to separate topic

[jklcpa]

So that this topic can continue with advice on solving the original problem, I've started a separate new topic for best practices of verifying and using client banking information.  I did this quoting the various posters to keep them in the order they appeared, and I've hidden or edited posts within this topic to not derail it further.

New topic is here