6.6 - Legal Duties & Responsibilities

Question 1

Civil actions for tax malpractice are usually based on either:

Answer 1

Traditional contract or traditional tort principles

Question 2

These impose the obligation to prepare the tax return diligently and competently:
These provide that a professional has a duty to exercise the level skill, care, and diligence commonly exercised by other members of the profession under similar circumstances:

Answer 2

Contract principles
Tort principles

Question 3

To prove malpractice against a tax preparer, the plaintiff must demonstrate all the following:

Answer 3

1. The tax preparer owed a duty to the taxpayer
2. There was a breach of that duty
3. The plaintiff suffered injuries
4. The breach of duty caused the plaintiffs injury

Question 4

If an accountant gets sued for breach of contract, what is the best defense?

Answer 4

The client failed to corporate (did not provide PBCs in time to complete work))

Question 5

Three torts are:

Answer 5

Negligence
Constructive fraud (gross negligence)
Fraud

Question 6

What is an accountants best defense if being sued for ordinary negligence?

Answer 6

That they had due diligence (work papers)

Question 7

To make out a case for negligence, the plaintiff must show the defendant:

Answer 7

1. Owed a duty of care to the plaintiff
2. Breaded that duty by failing to act with due care
3. Breach caused plaintiffs injury
4. Damages

Question 8

A CPAs duty to act with reasonable care generally runs only to:

Answer 8

Clients and any limited foreseeable class of persons whom the CPA knows will be relying on the CPAs work

Question 9

A minority of states follows the ultramares decision in which:

Answer 9

The CPA duty to act with reasonable care only runs to those in privy of contract with the CPA and intended 3rd party beneficiaries

Question 10

Actual fraud has 5 elements:

Answer 10

1. Misrepresentation of material fact
2. Intent to deceive (Scientor)
3. Actual and justifiable reliance by plaintiff on the misrepresentation
4. Intent to induce plaintiffs reliance on the misrepresentation
5. Damages

Question 10

Actual fraud has 5 elements:

Answer 10

1. Misrepresentation of material fact
2. Intent to deceive (Scientor)
3. Actual and justifiable reliance by plaintiff on the misrepresentation
4. Intent to induce plaintiffs reliance on the misrepresentation
5. Damages

Question 11

Constructive fraud has the same elements of actual fraud except:

Answer 11

Instead of intentionally deceiving, the dependent acts recklessly

Question 12

The CPAs liability for fraud and constructive fraud runs to who?

Answer 12

Anyone

Question 13

What is the CPAs best defense to fraud?

Answer 13

That they lacked scientor (acted in good faith)

Question 14

Damages associated with tax return preparation malpractice include:

Answer 14

1. Amount of taxes overpaid/underpaid
2. Penalties imposed
3. Interest owed by the taxpayer
4. Fees incurred to file amended returns
5. Lost investment or income opportunities for the taxpayer

Question 14

Damages associated with tax return preparation malpractice include:

Answer 14

1. Amount of taxes overpaid/underpaid
2. Penalties imposed
3. Interest owed by the taxpayer
4. Fees incurred to file amended returns
5. Lost investment or income opportunities for the taxpayer

Question 15

What is an evidentiary privilege?

Answer 15

Information exchanges within the scope of the relationship may not be disclosed as evidence in court without the consent of the privilege holder

Question 16

What are privileges available to CPAs?

Answer 16

1. Attorney-client privilege
2. Work product privilege
3. Tax practitioner-taxpayer privilege

Question 17

Available when the CPA has been engaged by the attorney prior to aid the attorney in providing legal services because the expertise of a CPA is needed:

Answer 17

Attorney-client privilege

Question 18

Can protect tangible materials produced in preparation for litigation a requested by an attorney but not to the communication between the attorney and accountant about the product:

Answer 18

Work product privilege

Question 19

Applies to tax advice from a tax practitioner that would qualify under the attorney-client privilege. Applies only to federally authorized tax practitioners under the IRC Section 7525.

Answer 19

Tax practitioner-taxpayer privilege

Question 20

This provides that the same common law protections of confidentiality that apply to a communication between a taxpayer and an attorney also apply to a communication between a taxpayer and any federally authorized tax practitioner:

Answer 20

IRC Section 7525

Question 21

An individual who is authorized under federal law to practice before the IRS. It includes public accountants, enrolled agents, and enrolled actuaries.

Answer 21

Federally authorized tax practitioner

Question 22

The tax practitioner privilege does not apply to any written communication between a federally authorized tax practitioner and any person in connection to:

Answer 22

Tax shelters