R6-M7 Legal Duties and Responsibilities

Question 1

what must a plaintiff demonstrate to prove malpractice against a tax preparer?

Answer 1

1. tax preparer owned a duty to the taxpayer
2. there was breach of that duty
3. plaintiff suffered injuries
4. the breach of duty caused the plaintiff’s injury (proximate cause)

Question 2

what are the 3 legal liabilities of tax preparer?

Answer 2

1. Breach of contract: failure to cooperate
2. Commission of a Tort: wrongful act either unintentional (ordinary negligence) or intentional (fraud)
3. Violating statutes

Question 3

what are 5 elements of fraud?

Answer 3

MAIDS
- Misrepresentation of material fact
- intent to deceive (knowing the statement was false) or SCIENTER (acting with knowledge or intent)
- Actual and justifiable reliance by plaintiff on the misrepresentation
- an intent to induce plaintiff’s reliance on the misrepresentation
- Damages

Question 4

what are differences between negligence and gross negligence?

Answer 4

• negligence: arises from ordinary negligence and liability is limited to clients and at most third parties who will foreseeably rely on the information
• gross negligence (constructive fraud): is a tort that arises when a CPA recklessly departs from standards of due care. No privity in this case, but the CPA is held liable by anyone who relied on the resulting misinformation

Question 5

what is Ultramares under negligence?

Answer 5

limits CPA liability more narrowly to:
- persons in privity of contract with the CPA (client) and
- intended 3rd party beneficiaries (named)

Question 6

what is Restatement rule?

Answer 6

followed by a majority of jurisdictions providing that is a CPA performs an audit negligently, the cpa os liable to the client and to any foreseeable class of persons whom the CPA knows will relying on the audit

Question 7

what are types of privileged communications?

Answer 7

1. attorney-client privilege: available when the CPA has been engaged by the attorney prior to aid the attorney in providing legal services because the expertise of the CPA is needed
2. work product privilege: can protect tangible materials produced in preparation for litigation as requested by an attorney
3. tax practitioner-taxpayer privilege (section 7525): applies to tax advice from a tax practitioner that would qualify under the attorney-client privilege.

Question 8

what are tax practitioner privilege?

Answer 8

• protect communication between taxpayer and attorney
• protect communication between taxpayer and federally authorized tax practitioner
• may only be asserted in any noncriminal tax matter before the IRS and federal court
• NOT apply to any written communication regarding tax shelters and criminal cases

Question 8

what are the exceptions an account can show workpapers without client’s permission?

Answer 8

1. lawful subpoena
2. prospective purchasers, as long as the prospective purchasers do not disclose the confidential information
3. quality control panel
4. AICPA/State trial board
5. court proceedings
6. when GAAP requires disclosure of such information in the FS
7. accountant’s attorney in defense of a lawsuit brought by a client