Hidden Dangers that may open up to liability during tax practice
Most accountants are involved in carrying out some tax work and therefore it is not unusual that major professional liability claims against accountants happen in the taxation area. The high monetary claims against accountants are found in the area of financial statements but the tax claim opportunity is higher. However, there are many white and black errors. The penalties and consequences can be calculated instantly unlike the true value of damages on audit and fraud.
LIABLE AND LATE
Late filing is one of the most common mistakes that accountants do which consequently result into liability. According to Bill Thompson, the CPA Mutual president, late filing is particularly prevalent in the estate area and when CPAs file the estate returns late, the penalties become quite huge. Thompson adds that giving time a year where there was a return error is a common mistake as well. There are situations where a CPA may have prepared an incorrect return and then allow the deadline for refilling the return to pass. Upon the expiry of the statute of limitations, IRS therefore deem that year as closed which in turn prohibits the CPA from refilling the return in the right manner and also obtaining a refund for taxes overpaid.
The main reason why tax is the main claim done frequently is that there is more taxation work that CPAs do across the country unlike any other service. Today, the audits are more and there is a direct relation between claims and audit. When audits rise, the claims get on the rise since the client think that it is the responsibility of accountants.
For instance, as per Raspante’s observation, even if a preparer states the tax payer to be a professional in real estate on the return and IRS contends it successfully, then the tax payer is not a professional in real estate. Therefore, when the allowable losses in real estate become unallowable, the reaction of the client is to get the accountant responsible for incorrectly advising him on the issue. Moreover, the tax code is complex and will not get easier.