Prudent practitioners guard against return preparer penalties

Article Abstract:

Tax preparers should always be ready to defend themselves when the IRS challenges the tax returns they arrange for their clients. The IRS appraises penalties against preparers for violations in composing tax returns every year to ensure that practitioners follow the Internal Revenue Code (IRC). Through its return preparer program, the IRS investigates preparers reportedly engaged in intentional misconduct or incompetence. Some of those preparers investigated find themselves penalized while others enjoined from preparing tax returns. The IRC contains four categories of provisions relevant to preparers: disclosure rules, standards for preparation of tax return/claim, negligent or fraudulent return/claim preparation sanctions, and rules for enjoining tax preparers. When faced with a challenge, preparers should study the nature of the penalty to develop the best strategy for defending themselves.

Public Finance Activities, Tax Administration, Discipline, Tax administration and procedure

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Tax practice areas where an accountant is most likely to face malpractice claims

Article Abstract:

A study of claims against accountants for malpractice was conducted to ascertain the tax practice areas where accountants are most likely to face malpractice claims. The research entailed 156 claims from insurance companies insuring small- to medium-sized certified public accounting firms. The most common areas of claims were tax shelters, qualified plans, and partnership returns. Thirty of the claims were for tax shelters or investment advice and the average settlement was $72,364. Eleven of the claims were for qualified plans, mainly involving pension or profit sharing problems, and the average settlement was $10,543. Eleven claims concerned partnership returns, mainly regarding percentage allocations, with an average settlement of $3,685. Twenty of the claims apparently were the result of dubious ethical practices. Research reveals that CPAs can be sued for just about any cause.

Cases, Tax accounting, Accounting firms, Accounting services

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Malpractice claims more likely in certain tax areas

Article Abstract:

A study was conducted to identify tax areas where accountants are most likely to be slapped with a lawsuit. Data were culled from 128 claims from an insurance carrier that sold accountants malpractice insurance between 1986 and 1993. Findings revealed that legal action tended to emerge in such areas as estate returns (11.7%), partnership returns (11.7%), state returns (9.4%), late filings (8.6%), personal residence (7.8%) and qualified plans (7.8%). Other hot spots are tax shelters (7%), divorce (6.3%), S corporations (5.5%), 1031 exchanges (4.7%) and alternative minimum tax (4.7%). Corporate liquidations and services for lawyers and athletes were also found to be problematic. Because the threat of malpractice suits remains real, accountants must always upgrade their knowledge of tax laws.

Commercial Banks, Trust, Fiduciary, and Custody Activities, Estate & Tax Planning, Research, Practice, Accountants, Estate planning, Malpractice

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