As tax time rolls around Certified Public Accountants (CPAs) often find themselves with more work than they can handle. In addition to their regular clientele they will often be solicited by referrals, or others simply needing assistance. This can amount to a work overload, which can result in errors in the preparation of documents.
The offering of tax advice and return preparation can result in the greatest number of claims against accountants, though their monetary value is not as significant as audit claims. This can cause serious issues for anyone who is an accountant and does not have CPA professional liability insurance. Not only is tax work the bread and butter of most accountants’ practices, but also the fact that they produce so many tax returns annually is why their work is subject to intense examination by the Internal Revenue Service (IRS).
Claims of malpractice are not uncommon
Tax malpractice results most frequently from simple lapses. Tax claims can range from a number of missteps, from missed deadlines and elections, to poor advice. But the vast majority stems from return errors. Malpractice occurs more from simple inattentiveness and poor client communications than from errors due to the complexities of the tax code. Most of the time these problems can be prevented by simple quality control procedures.
Naturally, CPAs have an obligation to their clients to exercise due professional care. An engagement letter provides the client and other third parties with rights of recovery, which means, if the CPAs are not performing within the agreement set forth in the contract, this will be considered a breach of contract.
The clients may also claim negligence against the CPAs any time the work is performed poorly and contains errors, or is not done professionally. This is considered a tort action. In order to recover from an auditor under common law, the client must prove either breach of duty, losses, or causation.
CPAs may defend against a breach of contract if they can prove that the client’s loss occurred because of factors other than negligence by the auditors. If this can be substantially proved, a client may then be accused of contributory negligence, and the auditor may eliminate their liability to the client based on this fact.
CPAs should always be thorough and check all work prior to having their client sign any tax documents to be submitted. CPA professional liability insurance will provide assistance when negligence or malpractice does occur.