Liability Limitation?

I was given a "Terms and Conditions" sheet by an accountant and was surprised to see that he limited his liability for anything at all to what he was paid for the work. That shocked me, but maybe it is a normal condition; I haven't don't have anything to compare it to. What do you think?

Reply to
Confused
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I think it is meaningless but I'm not a lawyer.

Is this accountant a CPA or otherwise licensed or professionally certified?

Reply to
Bill Brown

It is a well regarded group of 14 CPAs.

Reply to
Confused

Legally it's not necessarily meaningless. In many businesses it is permissible to limit your liability for regular negligence, but not for gross negligence or wilful misconduct.

Reply to
Stuart Bronstein

"Confused" wrote

I think he's a smart guy. I do that same thing, limiting my liability to any penalty amount, but not taxes or interest.

Reply to
paulthomascpa

That's an interesting distinction. Willful misconduct deserves less protection than a simple mistake, but what is the legal principal that makes it actually happen?

Reply to
Confused

The legal principle is that a person is not allowed to be indemnified against his own gross negligence or wilful misconduct.

Reply to
Stuart A. Bronstein

I agree with Paul. I have a similar clause in my engagement letter. I also spell out that I am NEVER responsible for the tax, you'd pay that anyway since the tax is your responsibility; I seldom accept responsibility for interest - interest is the cost of the use of money. The money sat in YOUR account NOT MINE while the issue was being resolved so I should not have to pay it. And I include a specific clause that if you pay any penalty without giving me an opportunity to resolve it first that I won't accept responsibility for the penalty - the IRS makes mistakes also and I've had a few clients who simply paid what the IRS said to pay and wanted me to reimburse them. I'm usually very successful in getting penalties abated, especially under the right circumstances (most of which most non pros don't know about). If you've ever tried to get the IRS to refund money they shouldn't have gotten in the first place you'll understand that it takes MORE time to get it back than it does to resolve it. So if the client paid erroneously I could spend twice as much time getting it back that I'd have spent getting it abated to start with.

I am sad to say that after almost 30 years in business, my engagement letter for a 1040 is now 4 FULL pages long.

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

That one is arguable: the money sat in my account earning 1% (taxable), while the IRS was charging me 6% (non-deductible), so I'm out 5.4%.

That makes sense.

How well does "It's not the client's fault, he went to a professional preparer and I goofed" work?

Seth

Reply to
Seth

Okay, two questions... You make a mistake, let's say you give a client bad advise because you assumed he would be subject to AMT, but he wasn't. He fails to get a deduction because he followed your advice. (I can flesh this scenario out if you want...) If you had spent a few minutes on it, you would have known he wouldn't be in AMT; nor did you tell him you were making an assumption. Too late to do anything about it; deduction is simply lost. Are you responsible for the loss? Does your limitation of liability protect you?

When do you give your client your terms; when he hires you, or when you deliver the workproduct?

Reply to
Confused

You'd better do it before you start to do anything billable, or it may not be effective.

Reply to
Stuart A. Bronstein

In my "example" they are saying something like: you hired us a month ago and here is the your tax return a week before it is due; attached are our terms. Use of the tax return is acceptance of our terms. Good luck finding another accountant if you don't like that. Are the terms effective? If not, what is the principle? They shouldn't be effective, but the law isn't always about what should be.

Reply to
Confused

Is the interest the IRS charges you deductible? I think yes if this is for business (ie. on a form 1120, 1120-S, Schedule C). IRC 162 only says that fines and penalties are not deductible, which suggests to me that interest is still deductible. On a personal return, this interest is a personal expense and is not deductible, but it could be deductible on a business return.

(f) Fines and penalties No deduction shall be allowed under subsection (a) for any fine or similar penalty paid to a government for the violation of any law.

Reply to
removeps-groups

I'm assuming you have not paid them yet. If you have, and this is the first time you saw their terms, they may not be enforceable.

In the normal case your using the tax return would constitute acceptance. In this case, if you really have no reasonable alternative, the terms may not apply. It will all depend on what the judge had for breakfast that day.

Reply to
Stuart Bronstein

"Seth" wrote

What if I screw up in your favor and you get a refund (+ interest), do I get any of that refund amount? The interest? Anything? No? Then why should I pay the tax or interest if the mistake isn't in your favor?

Reply to
paulthomascpa

"Confused" wrote

Engagement letters on "advice" includes the caveat that the advice is based on all known facts and circumstances at that time, and that the assumptions made in the tax planning (future events) are the sole responsibility of the client (individual or business) and were not the responsibility of the accountant. That the actual results will vary based on changes in the specific set of facts and circumstances as well as potential changes in tax laws (Congress has been know to make retroactive tax changes). All of those changes are not the fault of the accountant, nor are any of them within the accountant's control. Any issue of accountant liability in tax planning is if the computations are correct based on known facts and client provided assumptions - at that time - and there is no obligation for the accountant to amend their recommendations or advice based on any changes after that time. IE: The engagement ends with the presentation of the tax planning. Changes in the facts, circumstances, tax laws, lunar orbit, tides, weather, etc after that date are not the responsibility of the accountant and do not create any new responsibility to provide new advice to the client.

Reply to
paulthomascpa

"Confused" wrote

Most of my clients are returning clients, and the terms of the engagement letter haven't changed all that much from year to year. So for most of them it's sign all that (and the e-file authorizations) when it's picked up. New folks, and for all other accounting or tax work (non prep), we get an engagement letter up front and annually. In most cases we'll start the work before they sign and return it to us, and in the rare instances where they squawked about the terms or verbiage in the engagement letter (the accounting ones are mostly stock from the AICPA) we either talk them through it, they fire us, or we decline the engagement.

And frankly, if you're upset about who is responsible for something before there is something to be responsible for....there's the door. I don't need the hassle I'm going to get in a few months. I take good care of my clients, and I'm as fair (and then some) as I can be. But I won't be taken advantage of. So if you feel you're being cheated out of something from the beginning, I don't need you as my client.

Reply to
paulthomascpa

The issue is that the preparer took all his information and didn't disclose any terms of engagement. He delayed until just before the return is to be filed, so the client has no reasonable alternative. And at that time he springs on terms of engagement that the client feels may be unreasonable (though I'm not taking a position on that).

Is that fair? Say you hire a lawyer to defend you against something. He works up to the day before trial, and at that point gives you unreasonable terms of engagement. Is that reasonable?

Reply to
Stuart Bronstein

The accountant had all the facts needed for a correct decision; he actually said that he reread them before giving me the advice. They led him to think I would be in AMT, when 10 minutes of calculations would have shown that I wasn't even close. There was a lot of money involved; enough to justify a few days of work if necessary to get the right answer. At the very least I think he should have said "my preliminary opinion in May is that you don't need to make estimated tax payments; but I can give more definitive advice in December if you give me all your data then." But he didn't; he stated I didn't need to make them.

Reply to
Confused

In this buyer beware world, seems the client, who so closely scrutinizes the terms when disclosed, would become aware of those terms before engagement.

Reply to
paultry

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