Advisors can become scapegoats for troubled clients.

• Position: Internal Revenue Service - Certified Public Accountant

An attorney wins a verdict for a Massachusetts CPA wrongly blamed for a client's IRS woes. The case demonstrates why practitioners need to document their understanding of a client's expectations of what services they will deliver and the fee arrangement.

When the IRS pursued two businesses based in Deerfield, Massachusetts for unpaid payroll and sales taxes, the president and CEO of the companies sought to blame an outside CPA. A Franklin County jury cleared the CPA of all wrongdoing after deliberating for only two hours. Nonetheless, the case highlights that outside advisors face greater risk of becoming scapegoats amid today's troubled economy, according to Nancy M. Reimer, the LeClairRyan attorney who successfully defended the CPA in a three-day trial.

"An unfortunate consequence of the so-called 'Great Recession' is that business owners are increasingly trying to pass responsibility for their financial failures to their outside advisors," said Reimer, a Boston-based shareholder in LeClairRyan (www.leclairryan.com), who focuses her practice on defending professionals against malpractice claims. "Outside accountants and other professionals must be especially cognizant of this risk--and take extra steps to protect themselves."

Clear, Detailed Engagement Letters and Documentation

"Even if the potential claim against an advisor is weak," Reimer added, "cash-strapped companies will often sue anyway, hoping to win a settlement from the advisor's insurance company. Plaintiff's attorneys are well aware that some insurance companies are prepared to write off settlements as a cost of doing business and would rather pay than fight back in court. By insisting upon client engagement letters with clear and detailed contractual terms, as well as by carefully documenting their actions and conversations once they are on the job, advisors can dramatically reduce their liability exposure."

Indeed, "both of those steps might have helped the CPA in the aforementioned case avoid becoming a target of litigation," Reimer noted. The trial, which was held in Franklin County Superior Court, hinged on whether the CPA had notified the CEO of both Deerfield Valley Re-Fab and Deerfield Valley Crane Services of unpaid payroll and sales taxes for the two companies. "The CPA repeatedly raised the issue of the taxes with the controller who assured the CPA that he had, in turn, raised these issues with the CEO," Reimer said. "The CPAs conduct was utterly professional and...