Is Your Tax Practice Exposing You to Liability?

Source: Accounting Today

Most professional liability claims involve taxes, although financial statement claims usually involve higher dollar amounts. Here are several common areas that can lead to liability:

• Late filings, particularly in the estate area, where penalties are large, and in unfamiliar areas in which CPAs “dabble,” such as Sec. 1031 exchanges.
• Audit hot spots, such as Foreign Bank and Financial Accounts reports and treatment of a taxpayer as a real estate professional.
• Allegations that the tax preparer was aware of client information from, but took an inconsistent or aggressive position on, the client's return. To avoid problems, CPAs should retain client information and document key communications.

Once an error is discovered, the CPA should attempt to amend the return as soon as possible and work with the IRS to reduce penalties or restructure a transaction. The longer it takes to resolve an issue, the more it will cost.

For the complete article, read “Hidden Dangers – Your tax practice may be opening you up to liability.”

From Accounting Today, July 21, 2016, www.accountingtoday.com.