R6 legal duties and responsibilities

Question 1

Legal liabilities

1. breach of contract
2. Trot
3. Violating statues

Answer 1

1. Breach of contract
   - not fulfill the terms of his engagement
   - requires privity (only client and names third party beneficiary can sue)

• best defense - failure to cooperate

2. Trot
   Wrongful act:
   - punitive damages too
3. 1 Uninetntional
   - ordinary negligence
4. 2 Inetional = furad
   - Constructive fraud ( gross negligence, reckless)
   - Fruad ( intent, willful)
5. Violating statues

Question 2

Ordinary Negligene

Fraud & Constructive Fraud (Gross Negligence)

Answer 2

1) Ordinary Negligence:
best defence: Due diligence (workpapers)

elements in general:
Duty of care 
Breach 
Casualtiy 
injury 

• failure to properly supervise
• failure to wan of known internal control weakness

to whom duty is owned:
- generally client and any person relying on CPAS work ( creditors, investors)

• minority of states - privity of contract ( client and named third party)

…………………………………………

2) Fraud & constructive negligence
- Bad faith
- pay punitive damages as well and
- more people can sue

MAIDS
M: Misrepresentation of the material fact

A: Actual and justifiable reliance by the plaintiff on the misrepresentation

I: Intent to induce plaintiffs reliance on the misrepresentation

D: Damages

S: Scienter, Intent to deceive ( knowing the statement was false)

to whom is CPA liable?

• privty is not defense
• any person can sue for fraud

Best defense:
lack of scienter, good faith

Question 3

Damages

Answer 3

Compensatory Damages: money - ordinary negligence and or breach

Reasonable foreseeable

1) taxes
2) penalties
3) interest
4) cost incurred to correct tax returns
5) Consequential Damages ( lost investment or income opportunities)

For Fraud
- punitive damages as well

Question 4

Privileged communication, confidentiality, and privacy acts

Answer 4

Privileges available to CPAs

1) attorney-client privilege:
available when CPA has been engaged by an attorney

2) Work product privilege
- preparation for litigation

3) tax practitioners-taxpayer privilege
- applies only to Federally authorized tax practitioner under the IRC Section 7525
- only for civil cases

• special rule for tax shelters ( evasion and avoidance)

** can not share info with the practitioners who is buying your firm…can show by blacking our the confidential info