6.6 - Legal Duties & Responsibilities Flashcards
Civil actions for tax malpractice are usually based on either:
Traditional contract or traditional tort principles
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:
Contract principles
Tort principles
To prove malpractice against a tax preparer, the plaintiff must demonstrate all the following:
- The tax preparer owed a duty to the taxpayer
- There was a breach of that duty
- The plaintiff suffered injuries
- The breach of duty caused the plaintiffs injury
If an accountant gets sued for breach of contract, what is the best defense?
The client failed to corporate (did not provide PBCs in time to complete work))
Three torts are:
Negligence
Constructive fraud (gross negligence)
Fraud
What is an accountants best defense if being sued for ordinary negligence?
That they had due diligence (work papers)
To make out a case for negligence, the plaintiff must show the defendant:
- Owed a duty of care to the plaintiff
- Breaded that duty by failing to act with due care
- Breach caused plaintiffs injury
- Damages
A CPAs duty to act with reasonable care generally runs only to:
Clients and any limited foreseeable class of persons whom the CPA knows will be relying on the CPAs work
A minority of states follows the ultramares decision in which:
The CPA duty to act with reasonable care only runs to those in privy of contract with the CPA and intended 3rd party beneficiaries
Actual fraud has 5 elements:
- Misrepresentation of material fact
- Intent to deceive (Scientor)
- Actual and justifiable reliance by plaintiff on the misrepresentation
- Intent to induce plaintiffs reliance on the misrepresentation
- Damages
Actual fraud has 5 elements:
- Misrepresentation of material fact
- Intent to deceive (Scientor)
- Actual and justifiable reliance by plaintiff on the misrepresentation
- Intent to induce plaintiffs reliance on the misrepresentation
- Damages
Constructive fraud has the same elements of actual fraud except:
Instead of intentionally deceiving, the dependent acts recklessly
The CPAs liability for fraud and constructive fraud runs to who?
Anyone
What is the CPAs best defense to fraud?
That they lacked scientor (acted in good faith)
Damages associated with tax return preparation malpractice include:
- Amount of taxes overpaid/underpaid
- Penalties imposed
- Interest owed by the taxpayer
- Fees incurred to file amended returns
- Lost investment or income opportunities for the taxpayer
Damages associated with tax return preparation malpractice include:
- Amount of taxes overpaid/underpaid
- Penalties imposed
- Interest owed by the taxpayer
- Fees incurred to file amended returns
- Lost investment or income opportunities for the taxpayer
What is an evidentiary privilege?
Information exchanges within the scope of the relationship may not be disclosed as evidence in court without the consent of the privilege holder
What are privileges available to CPAs?
- Attorney-client privilege
- Work product privilege
- Tax practitioner-taxpayer privilege
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:
Attorney-client privilege
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:
Work product privilege
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.
Tax practitioner-taxpayer privilege
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:
IRC Section 7525
An individual who is authorized under federal law to practice before the IRS. It includes public accountants, enrolled agents, and enrolled actuaries.
Federally authorized tax practitioner
The tax practitioner privilege does not apply to any written communication between a federally authorized tax practitioner and any person in connection to:
Tax shelters
