Video: Introduction to Common Law Duties and Liabilities to Clients and Third Parties

In this lesson, Nick Palazzolo, CPA, dives into the intricacies of common law duties and liabilities for tax preparers when dealing with clients and third parties. He sheds light on the legal obligations that arise not from statutes but from court decisions influenced by historical legal systems. This legacy legal framework deeply affects the conduct and responsibilities of tax preparers and accountants. Nick draws parallels between the duties in tax preparation and those in auditing, emphasizing the fiduciary duty owed to clients, the possession of work papers by the preparer, and the ownership of the final product by the client. He encourages a thorough understanding of these concepts, noting their universal importance across different facets of accounting practice.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Diving into what we have here for common law duties and liabilities to clients and third parties. Well, these are going to involve legal obligations and responsibilities that arise from the relationship between tax preparers and their clients, as well as third parties who may rely on the tax preparer's work. These duties and liabilities are not codified in statuses, but have been established through court decisions over time. That's a commonality we will see. A lot of what we're going to see throughout just the course, the lessons, everything here is that there's going to be plenty that is just built upon. It goes back to the English system of law that was brought over to the U.S. when this country was established, and that is, again, how a lot of things are managed. The Supreme Court has the ability to make big decisions, which then can become amendments to the Constitution. Smaller courts can also have an impact on the law of the land. So that's just how it works. Now, this might sound familiar if you've taken the audit exam, because this is pretty much the same exact... Most of what we're going to see here applies to audits as well. We think about it. If you're a tax preparer, if you're an accountant, let's just call yourself an accountant, you're doing tax preparation, you're doing that for a client, or if you're an accountant, you're doing an audit for a client, it's the same thing. You owe a fiduciary duty, you're going to have an end deliverable, your work papers are yours, and the end product belongs to the client. So there's a bunch of similarities, and as we go through, you'll see that a lot of what we see here applies to audits as well.

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Federal Tax Procedures

Module: 2 Concepts, 35 Videos

Common Law Duties and Liabilities to Clients and Third Parties Overview

1:52

Introduction to Common Law Duties and Liabilities to Clients and Third Parties

1:35

Legal Liabilities of Tax Preparers

7:08

Example of a Breach of Contract