Module 4: Legal Duties and Responsibilities

Question 1

Contract principles

Answer 1

Impose the obligation to prepare the tax return diligently and competently

Question 2

Tort principles

Answer 2

Professional has a duty to exercise the level of skill, care, and diligence commonly exercised by other members of the profession under similar circumstances

Question 3

What must the plaintiff demonstrate to prove malpractice against a tax preparer?

Answer 3

All of the following:

1. Tax preparer owed a duty to the taxpayer
2. Breach of that duty
3. Plaintiff suffered injuries
4. Determinable cause between injury suffered and duty of preparer

Question 4

Tort

Answer 4

Wrongful acts either unintentional (ordinary negligence) or intentional (fraud)

Question 5

What are the 3 relevant torts?

Answer 5

1. Negligence
2. Constructive fraud (gross negligence), and
3. fraud (intent, willful)

Question 6

What must the plaintiff show to make a case for negligence?

Answer 6

1. Defendant owed a duty of care
2. Defendant breach that duty
3. Breach caused plaintiff’s injury
4. Damages

Question 7

5 elements of fraud (intentional misrepresentation)

MAIDS

Answer 7

1. Misrepresentation of material fact
2. Actual or justifiable reliance by plaintiff on misrepresentation
3. Induce plaintiff’s reliance on misrepresentations
4. Damages
5. Scienter - intent to deceive (knowing statement was false)

Question 8

elements of constructive fraud (gross negligence)

Answer 8

MAID + defendant acts recklessly

Question 9

Damages associated with tax return prep malpractice

Answer 9

• Taxes
• Penalties
• Interest
• Costs incurred to correct tax returns
• Consequential damages

Question 10

Federally authorized tax practitioner

Answer 10

Any individual who is authorized under federal law to practice before the IRS

Question 11

What are the privileged communications available to CPAs?

Answer 11

• Attorney-Client privilege
• Work product privilege
• Tax practitioner-taxpayer privilege