The offering of tax advice and return preparation by certified public accountants (CPAs) can result in a great number of claims against accountants, although any monetary loss pales in significance to the scrutiny of audit claims. This can wreak havoc on an accountant that does not have accountant professional liability insurance in their portfolio.
While tax season is the bread and butter of most accountants’ practices, the fact is that they work all year around helping people and businesses with their finances. The amount of work they produce annually is immense, which is why their work is often subject to intense examination by the Internal Revenue Service (IRS).
CPAs often victims of claims of malpractice
Malpractice quite often occurs from simple inattentiveness or poor client communications. This is usually the case, and more likely 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. Claims can range from any number of mistakes, from missed deadlines and elections, to poor advice. But the vast majority stems from return errors.
CPAs have a certain 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 that if the accountant is not performing within the agreement, as set forth in the contract, then it will be considered a breach of contract.
Clients may also claim negligence against their accountant any time the work that is performed is poorly done, contains errors, or is not laid out in a professional manner. 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.
The auditors may leave it up to the accountant to prove that the client’s loss occurred because of factors other than negligence. If he or she can be substantially prove this to be true, a client may then be accused of contributory negligence, and the auditor may eliminate the liability of the accountant to the client based on this fact.
Accountants should always be thorough and check all work prior to having their client sign any tax documents waiting to be submitted. Having accountant liability insurance will provide relief when negligence or malpractice does occur. Speak to a reputable agent about obtaining this important coverage.