Practice makes perfect.

Author:Lee, Keith R.
Position:Estate tax returns

Tax practitioners have enough concerns without having to fear the specter of a professional liability claim resulting from a preventable mistake or oversight. Many of these slip-ups can be prevented by simply jotting a contemporaneous note recording the rationale for an election or flagging a filing deadline on the calendar. Early, thorough and well-documented communication with the client--including a well-crafted engagement letter--is key, as are close attention to filing deadlines and thorough double-checking of all return information. Here are some common trouble spots that tend to trigger a substantial number of claims.


The deadline for filing an estate tax return is based on the decedent's date of death. Because it's not a regular date (like the April 15 deadline for individual returns), it is sometimes overlooked, resulting in late filings. To make matters worse, because of the large tax amounts reported on estate tax returns, the late filing penalties often exceed $100,000. CPAs ensnared by such claims usually didn't pay enough attention to their calendaring system for due dates or didn't have a system at all.

CPAs also incur late payment penalties for estate tax returns by not realizing that:

* A payment extension request requires completion of a separate section of IRS form 4768.

* The payment extension is not automatic (like the filing extension for individuals); it requires a showing of "reasonable cause."

* The IRS has discretion whether to grant the payment extension because of the "reasonable cause" requirement. Therefore, the extension should be requested well in advance of the estate tax return due date to account for the contingency of an IRS denial.


Claims arise because the CPA rather than the client chose the "best" legal entity for the client's new business and did not document the advice provided to the client. Each entity type has advantages and disadvantages. If unforeseen events occur after the business has launched, a selected entity's disadvantages can be triggered. If they are, a client may complain that a different entity type would have better addressed the situation. The CPA must provide clients full information regarding available entity types and the advantages and disadvantages of each. After receiving that information, clients---not the CPA must select the entity they feel is the best fit for their new businesses.


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