R4 - M4 - Legal Duties and Responsibilities Flashcards
What can the plaintiff sue the taxprepaer for?
The tax payer owed a duty to the taxpayer and there was a breach in that duty. Due to this, the plaintiff suffered injures.
For breach of contract, what is privity? What is the exception?
Privity means that the parties that the contract applies to are the only ones that can sue each other. So if I prepared Irma’s return, she can only sue me and not her dad.
If there is a beneficary on behalf of the enagement, then they can sue also.
Someone can sue you for unintentional torts. What are those?
That is a wrongful act but it was not intentional. For example, you count inventory for a client. You find that they have all the boxes but don’t check what is in those boxes. If those boxes were empty, then this is an example of this.
Ordinary negligence
Lacks reasonable care
Compensatory damages only
Someone can sue you for intentional torts. What are those?
These are fraud.
Constructive fraud - Gross negligence or reckless. Lets say that you know an inventory count is going to be hot, so you skip the inventory count and give a clean opinion. That is gross negligence.
Fraud - CPA acts in bad faith, with intent. You go to count, but there is nothing in the warehouse. The client bribes you for a clean opinion and you accept. That is an example of this.
Both frauds are punitive damages.
What is the best defense for a CPA when it comes to ordinary negligence?
Best defense is by saying you did your due diligence. The best way to show that is with documented workpapers.
Generally, who does the CPA owe due diligence to?
Clients, people who will rely on that work (creditors, investors, etc.)
What is the Ultramares decision?
Limits the CPA’s liability to persons in privity of contract.
For constructive fraud (Gross Negligence), whom is the CPA liable?
Lability is much broader than it is for negligence. Anyone can sue for fraud, privity is not a defense.
Best defense is that you were negligent but lacked Scienter. Which would just be the MAID but no S.
What is the summary for the levels of fault?
Reasonable care = No negligence, not liable
Lack of reasonable care = good faith but did it incorrectly, ordinary negligence.
Lack of even slight care = Gross negligence or constrictive fraud.
Actual fraud = actual intent to deceive.
What are some examples of compensatory damages?
More for ordinary negligence or breach of contract.
Taxes - possible reimbursement for overpayment in taxes
Penalties - imposed because of errors on tax return
Interest - owed by taxpayer due to errors.
Costs to amend the return
Consequential damages.
PUnative is fraud only.
How does Attorney client privilege work for CPA’s
When a CPA has been engaged by an attorney to aid the attorny, attorney client privlege may come into place.
Protects the communication between the attorney and the accountant.
What is work product privilege’s?
Can protect tangible materials produced in preparation for litigation as requested by an attorney.
What are the privileges avaialble to CPA’s without an attorney?
Tax advice from CPA would qualify under attorney client privilege.
What is the tax prationer privilege and where does it apply?
Applies to civil cases
What is federally authorized tax practitioner?
An individual authorized under federal law to practice before the IRS.
CPA, EA.
