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By: Jessica C. Samford
As the well-known saying goes, “Nothing can be said to be certain, except death and taxes,” and with the federal individual income tax deadline quickly approaching on Tuesday, April 17, 2018, now is a good time for tax professionals to take a quick break from their busy season and take account of the possible liabilities that could arise when filing tax returns.
Similar to legal malpractice claims against a lawyer, an accountant may be held liable for professional malpractice, which often involves allegations of a negligent act or omission in performing accounting services below the standard of care for certified public accountants, for example. A simple illustration of this would be if a tax professional misses the deadline by failing to file either the tax return or the extension, postmarked on or before Tax Day (perhaps with a payment to accompany the extension to decrease the potential for interest and penalties).
While the advent of e-filing alleviates some of the pressure of the Tax Day deadline, there could still be mistakes within the returns themselves. Whether it be inadvertent typos, reliance on figures miscalculated by prior tax professionals, or reliance on misrepresentations by clients, the decision to amend the return or not after a mistake is discovered also affects potential liability of the tax professional. Unhappy clients can get creative in asserting numerous claims under a variety of theories in addition to professional malpractice, such as breach of fiduciary duty, fraud, constructive fraud, negligent misrepresentation, breach of contract, breach of good faith and fair dealing, violation of applicable state laws, etc.
Although having to file taxes may be as certain as death, accounting service liability has many uncertainties to account for, such that professional liability insurance and assistance of legal counsel should be considered in any risk management strategy.
If you have any questions or would like more information, please contact Jessica Samford at [email protected].