Video: Legal Liabilities of Tax Preparers

In this lesson, Nick Palazzolo demystifies the complexities surrounding the legal liabilities that tax preparers face, emphasizing the critical nature of contracts within the realm of tax preparation. He clarifies how even seemingly informal agreements to prepare tax returns correspond to contractual obligations with significant legal implications. Nick delves into what constitutes a breach of contract, the application of contract theory, the ramifications for third parties, and the distinctive differences between contract and tort principles in tax malpractice claims. Attention is also given to the criteria required to establish a successful tax malpractice case, providing comprehensive insights into duty, breach of duty, injury, and causation. This lesson underscores the paramount importance of due diligence and competence in the tax preparation industry to prevent legal repercussions and maintain professional integrity.

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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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Let's talk about the legal liabilities of these tax preparers, specifically contracts. Well, when a CPA enters into a contract with a client, now, I mean, this is not even a big formality, right? If you're just doing a simple tax return, that's going to take you an hour for someone. I mean, that's technically a contract, right? Obviously, we get into contract law, we have a lesson on that. But when you enter into a contract with a client, you agree to provide specific services as outlined in the engagement letter. Now, like I said, it could be as simple as a tax return, that's going to take you an hour, or it could be something a lot more complex, like a tax return that might take you 40 hours. Maybe they have five businesses, they've got 15 kids, and they've got 20 homes. There's going to be a lot of complications and serious implications on how your tax return comes out. This can include preparing tax returns, providing financial advice, or conducting audits, any of this, right? We said this can apply to audits as well. You could be doing tax advice, you could be spending hours on the phone advising them on what they should do for tax purposes. The client expects the CPA to perform these services with due diligence, competence, and in a timely manner. You're going to do your research, make sure you're not just recommending things for the sake of recommending them. You're going to be competent, you're going to actually know what you're talking about, and do it in a timely manner. We'll see examples where if they say, I need a tax return by April 15th, and you don't have it by April 15th, well, that's a breach of contract, a

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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