My CPA firm explicitly told me not to pay 2024 NY estimated taxes and also underestimated total taxes, which resulted in over $12k in penalties and interest. They're only offering to cover $4,034 through their insurance. Looking for advice on next steps.
In June 2024, I asked my accountant about Q2 estimated taxes. They responded in writing: "For NYS we have sufficient overpayment to cover all estimated taxes for 2024." I relied on this guidance and did not make estimated tax payments to NY. As for actual amounts owed, they said in writing “For the state returns you have no balance due with extension due to your PTET and NOL carryovers.”
When I filed my 2024 return in October 2025 (extension), I owed a significant amount and got hit with:
- Late payment penalty: about $4k
- Estimated tax penalty: about $2.5k
- Interest (at 9.5%): almost $7k
Their response:
After I raised the issue, they:
- Waived their $750 prep fee
- Submitted an insurance claim
- Now say they'll only cover the $4,034 late payment penalty
Their reasoning for not covering the rest:
- Estimated tax penalty: They claim I was "paying estimates on my own" and their email was about 2025, not 2024 (despite the written June 2024 guidance quoted above)
- Interest: They say I "had use of the money" so they won't cover it
My questions:
- Do I have a strong malpractice case here given the written guidance?
- Should I try to negotiate further, or go straight to a demand letter from an attorney?
- Is it worth filing a complaint with the NY State Board of Public Accountancy?
- What's a realistic settlement amount I should push for?
- Has anyone dealt with accountant E&O insurance claims? Do they typically try to minimize payouts like this?
The "use of the money" would make sense if the market rate for interest was comparable to the rate charged by the NYS tax department, but 9.5% is a punitive amount that is nowhere near the 3% or so I would get in a savings account or CD. To acknowledge the penalty but not acknowledge the interest (at least the difference between market and 9.5%) which is directly caused by their error feels very unreasonable to me.
Accountant's incorrect guidance on NY taxes resulted in $12K+ penalties
byu/ragelike intax
Posted by ragelike
2 Comments
Is it possible there was a large tax event in 2024 that they were not aware about? I see this all the time where we think clients are sufficiently safe-harbored but then there is a large event we were unaware of that results in a large payment due along with underpayment penalties. In this scenario, we would not cover penalties for the client and it’s their responsibility to disclose those items to us so we can adjust estimates accordingly.
7k of interest? How does that math work?