Common ;aw duties and liabilities to clients and third parties

Question 1

Elements of a breach of contract suit - To win a breach of contract lawsuit, a plaintiff must prove the following four elements:

Answer 1

Existence of an enforceable contract
Plaintiff client complied with contractual obligations
Defendant accountant breached the contract; and
The breach may be intentional but need not be for this element to be satisfied.
Damages were caused by the breach

Question 2

Examples of breach of contract

Answer 2

Accountant failed to complete the tax return as promised.
Accountant filed the tax return late.
Accountant filed the tax return filled with errors.
Accountant gave faulty tax planning advice to client.

Question 3

Burden of proof

Answer 3

The burden of proof in most civil cases, including breach of contract and negligence cases, is the “preponderance of the evidence” standard, meaning that plaintiff need only establish that alleged facts are more likely true than not true (>50%).

Question 4

statute of limitations

Answer 4

Oral contract: two years from breach; or

Written contract: four years from breach

Question 5

justifiable breach

Answer 5

Sometimes a client’s misconduct justifies an accountant’s breach, precluding liability.
Examples:
Client refuses to provide accountant with the documents necessary to complete the tax return.
Client provides accountant with incomplete, inaccurate, or misleading information.
Client informs accountant that it will not pay her bill as promised.
Client’s CFO was incompetent, undermining the reliability of the client’s financial information. Accountant agreed to do the following year’s tax return only on condition that the CFO be replaced. The client promised to do so but then did not. The accountant would be justified in refusing to complete the tax return.

Question 6

Substantial performance

Answer 6

If an accountant’s breach of contract is major, she is not entitled to recover her fee and will be liable for damages. But if the breach is minor, she will be entitled to recover her fee, but minus damages to plaintiff caused by the breach.

Question 7

Elements of a Cause of Action for Professional Negligence

Answer 7

1. Defendant accountant owed a duty of care to the client plaintiff.
2. Defendant breached the standard of care
3. The standard of care can be raised above that of the “reasonable” accountant by:
   An accountant being a specialist;
   An accountant holding self out has having special expertise; or
   A contractual provision in which the accountant promises a higher duty of care.
4. The breach proximately causes an injury
5. Plaintiff client suffers damages

Question 8

Negligent Misrepresentation - Elements of a cause of action

Answer 8

One common formulation requires the plaintiff to prove all of the following elements:
Defendant is in the business or profession of supplying information.
Accountants are, of course, in such a profession.
Defendants provided false information for the guidance of others in their business transactions.
CPAs working as tax advisers or TRPs, as auditors, or as consultants might do this.
Plaintiff relies on the information.
If there is one significant difference between the typical negligence cause of action and the negligent misrepresentation cause of action, it is this requirement of reliance.
Proximate causation; and
As with regular negligence, this requires proof of both factual and legal causation.
Damage to plaintiff.

Question 9

Types of Beneficiaries

Answer 9

Intended beneficiaries (can sue)
-Creditor beneficiaries
-Donee beneficiaries
Incidental beneficiaries (cannot sue)

Question 10

A tax return preparer, who prepares a return or refund claim, which includes an “unreasonable position

Answer 10

must pay a penalty of the greater of $1,000 or 50% of the income derived by the preparer for preparing the return (50% × $1,000 = $500). A position is unreasonable if there is not substantial authority for it. There is an exception to this rule if the position was disclosed and there is a reasonable basis for it.

Question 11

If the understated tax liability is due to an unreasonable position and the preparer willfully attempts to understate the tax liability or recklessly or intentionally disregards rules or regulations

Answer 11

the penalty is the greater of $5,000 or 75% of the income earned by the tax preparer for preparing the return or claim (75% × $1,000 = $750).