Dear Harry: I think there's a rip-off somewhere in what just happened to me. I went to a famous chain of tax preparers to get my return done. They charged me an extra $39 for an "insurance policy" to protect me in case of errors in my return. Well, it happened. There was an error in my return amounting to little more than $1,200. The policy was good. It paid enough to cover my tax deficiency. Now, they're telling me that I have to pay income tax on the insurance payment! This doesn't make any sense. The mistake was not mine. I paid for the extra protection, and now they're hitting me again? Will I have to pay the tax on this? I think your readers should be aware of this delayed surprise.
Harry Gross: Tax firm did right by reader
What Harry says: Let's look at this situation more closely. If the return had been prepared correctly, you would have had to pay Uncle Sam the $1,200 at the outset. You didn't. Now the insurance paid your obligation. That puts your pocket ahead by the amount you never paid. So now you're "richer" by $1,200 on which an income tax was never paid. The $39 was merely an added cost of getting the return prepared. Another way of looking at it is as if you prepared the return and made the error. The shortage of $1,200 would have come out of your bank account. The preparer has not hurt you at all.
Write Harry Gross c/o the Daily News, 400 N. Broad St., Philadelphia, PA 19130. Harry urges all his readers to give blood: Contact the American Red Cross at 1-800-Red Cross.
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