1. What does it mean that the Tax Preparers' E&O Policy is a Claims Made Policy?
Claims Made means both the event that causes the loss and the claim itself must occur during the policy (or retroactive period). Once the policy is cancelled, a claim can no longer be made for a loss that occurred during the policy period unless an extended reporting period (tail coverage) is purchased.
2. What is retroactive coverage?
An agreement to cover losses occurring in a defined period before the effective date of the policy.
3. What is bookkeeping coverage?
The policy only covers errors made during the preparation of taxes. Some tax preparation businesses may also provide bookkeeping services. This endorsement extends coverage to bookkeeping activities too.
4. How long does retroactive coverage last? Does the policyholder pay for it every year?
The policyholder pays for retroactive coverage once. However, the retroactive coverage lasts as long as the policy remains continually in force.
5. What is the declaration page?
A declaration page or "dec page" is a common insurance document that outlines effective, anniversary, and retroactive dates along with coverage limits and deductibles. It provides a good summary of the policy and is issued for almost all types of insurance products.
6. Does the policy holder get an endorsement outlining the retroactive period?
No, an endorsement for the complimentary one year retroactive coverage is not provided. The policy itself allows for a retroactive period. The declaration page specifies the retroactive date. When a second year of retroactive coverage is purchased, we provide an endorsement so that you have confirmation of what was purchased.
7. Is the rating based on number of employees or number of tax preparers?
The rating is based on the total number of employees.
8. Does the policy cover a fine against the preparer? Additional tax found due?
The policy covers penalties and interest the IRS charges to the tax payer only. The policy would not cover additional taxes due because the tax payer would have been responsible for those amounts even if the tax preparer had made no mistakes. The penalties and interest assessed against the tax payer are a direct result of the mistake so those amounts are covered subject to the policy limits. Penalties assessed against the preparer are not covered.
9. Are defense expenses included within the limits?
Yes, defense costs are included but use up the policy limits just like any other claim.
10. Does the aggregate limit apply per year?
Yes, the aggregate limit is a per tax year limit. For example, on a $100,000 single, $200,000 aggregate policy the maximum amount of loss payable during the 2013 year would be $200,000.
11. If I hire an independent contractor to assist my office during the tax season and this contractor is using my Efile Pin# to file tax returns, is there coverage under my policy for this contractor?
We suggest that independent contractors obtain their own coverage, but there could be circumstances where errors committed by the use of an independent contractor might be covered under the policy the same as if committed by an employee when it is deemed that those are errors for which the insured is legally responsible. So if by filing returns under your name and using your Efile Pin# makes you legally responsible for the error, there could be coverage. Any work performed by an independent contractor that is not directly associated with the insured's business would not be covered.