I-3 Legal Duties and Responsibilities

Question 1

What are 4 elements of breach of contract?

Answer 1

1. Existence of an enforceable contract.
2. Client complied with her contractual obligations.
3. Accountant breached the contract.
4. Damages were caused by the breach.

Question 2

What are 2 breach of contract defenses?

Answer 2

• Statute of limitations:
  1. Oral agreement - 2 yrs.
  2. Written - 4 yrs.
• Justifiable breach: ex) client refused to provide necessary doc or provided inaccurate info.

Question 3

What are 2 negligent elements?

Answer 3

*Accountant owed a duty of care to client.
*Accountant breached the duty of care:
Carelessness is a key.
*The breach proximately causes an injury.
Factual (“but for”) causation (if it wasn’t for the advice, there was no injury).
Legal (proximate) causation (reasonably foreseeable).
*Client suffers damages.

Question 4

What damages are recoverable for breach of contract and negligence cases?

Answer 4

Compensatory damages - yes.

Punitive damages - no.

Question 5

How long is the statute of limitations for negligence?

Answer 5

2 yrs.

Question 6

What is negligence defense? What is not a defense?

Answer 6

Comparative negligence: If P (plaintiff)’s carelessness contributed to causally to the loss, P’s recovery will be reduced and maybe barred if P’s carelessness exceeds 50%.
Disclaimer in contract.

Question 7

What are 5 fraud elements?

Answer 7

1. False representations of facts (or omission in face of duty).
2. Misrepresented (or omitted ) facts was material.
3. D (defendant) knew or recklessly disregarded the falsity.
   * Knowledge=actual fraud.
   * Recklessness=constructive fraud.
4. D interred to and did induce reasonable reliance.
5. The false stmts or omission proximately caused damages.

Question 8

What damages are recoverable for fraud cases?

Answer 8

Both compensatory and punitive damages.

Question 9

What is fraud defense?

Answer 9

Statute of limitations - typically 4 yrs.

Question 10

What cases can be also prosecuted criminally?

Answer 10

Fraud, but not breach of contract or negligence.

Question 11

Breach of Contract: What are 3 types of third-party beneficiaries (3PBs) and which one can sue?

Answer 11

1. Intended creditor beneficiaries (can sue).
2. Intended donee beneficiaries (can sue).
3. Incidental beneficiaries (can’t sue).

Question 12

Negligence in third-party: When is accountant generally liable to one or limited class of non clients?

Answer 12

Where D accountant knows:

• The info supplied to the client is for the benefit of this limited class.
• The info will influence third parties in a specific transaction or type of transaction.

Question 13

Third party: Who are fraudsters liable to?

Answer 13

All persons they can reasonably foresee will be injured by their false representations or omissions.

Question 14

Third party: What is defense against negligence or breach of contract?

Answer 14

Lack of privity.

Question 15

Under which law, lawsuits for negligence and breach of contract are filed?

Answer 15

Common law.

Question 16

Which can usually recover: Foreseeable party (ex: vendors) or an actually foreseen party?

Answer 16

Actually foreseen parties (banks, shareholders)

Question 17

What is Ultramares rule?

Answer 17

Recovery is normally allowed by a third party only if there was privity of contract between the accountant and third party.

Question 18

What are 2 types of privileged communications?

Answer 18

• Testimonial privileges: ex: attorney-client, doctor-patient, priest-penitent. Protected party (client) can prevent the party who received info from testifying.
• Work product privileges:This privilege typically prevents one party in a lawsuit from learning the other side’s attorney’s strategies for litigation.

Question 19

How many states recognize accountant-client privilege?

Answer 19

15.

Question 20

What are 4 things to remember re: accountant-client privilege?

Answer 20

1. The privilege belongs to the client, not to the accountant.
2. The privilege can be waived by the client, either expressly or through voluntary and knowing disclosure of the relevant info.
3. Waiver of the privileges as to part of the communication is waiver as to all
4. The privilege applies only in state court where state procedural rules apply.

Question 21

What is “tax practitioner’s privilege”? Exception?

Answer 21

Congress enacted in 26 USC Sec. 7525 to extend a modest testimonial privilege to client of ALL tax advisors authorized to practice before IRS.

Applies only in noncriminal tax matters before IRS or in federal court in actions brought by or against US.
It also exempts written advice in connection with promotion of a tax shelter.
Not apply to info communicated to the practitioner solely for the purpose of facilitating tax return preparation (legal advice protected, but not general accounting advice).

Question 22

What is GAPP? What are many states considering to do re: privacy statutes?

Answer 22

Generally Accepted Privacy Principles. AICPA has proposed, but hasn’t adopted yet.
Enact statute requiring professionals to protect client’s SSN and encrypted emails containing sensitive info.

Question 23

What is AGI?

Answer 23

Adjusted gross income: Gross income - deductions for AGI. Child support is deductible, but not alimony.

Question 24

What is the payment deadline in full for prior tax returns that were not filed?

Answer 24

An online installment payment plan can be requested if the amount owed is less than $50,000