Be Alert of Potential Tax Claims: Tax Reform + Wayfair
An Ignite Blog by: Deborah Rood, CPA
Risk Control Consulting Director, CNA Insurance
Published March 15, 2019
Few tax practitioners would disagree that this tax season has been dominated by the Tax Cuts and Jobs Act (“Tax Reform”). Although I am no longer in public accounting and work for CNA Insurance, Tax Reform has similarly dominated my thoughts with questions such as “will Tax Reform result in professional liability claims against CPAs?” or, more importantly, “what can CPAs do to mitigate a successful claim?”
The answer to my first question very well may be “yes.” Tax claims may arise from misapplication of the new law, largely due to lack of or late guidance from the IRS related to Tax Reform.
But take heed, there are actions that CPAs can do to mitigate the risk of a potential claim:
Be Aware of New Guidance and Developments
You’ve already taken relevant CPE classes addressing the needs of your client base, but additional Tax Reform guidance is being issued daily. Even though it’s tax season, remaining current is essential. To keep up with in-season changes, refer to the AICPA’s Tax Reform Resource Center. Have specific questions? Consider posting them to KSCPA's Exchange forum to get a peer’s non-authoritative thoughts.
Be Careful of Scope Creep
If the client requests your advice related to Tax Reform, such as how to group activities to maximize the IRC §199A deduction, recognize that this is a consulting engagement. If planning is requested during a compliance engagement, an additional engagement letter should be issued (if for no other reason to ensure you get paid for the additional work!).
Consider the Timing
Rushing to meet deadlines may result in increased errors which, in turn, may cause a greater likelihood of malpractice claims. With the complexities of Tax Reform, this year, more than ever, I recommend giving clients strict deadlines to submit information so returns may be properly reviewed. If clients don’t comply, extend the tax return!
Document the Client’s Options, Ramifications, and Decisions
Lack of IRS guidance may result in open or unclear answers to many Tax Reform situations. If this occurs, identify available options and the potential ramifications of each option so the client may make an informed decision on the position taken on its tax return. While a client may request your recommendation, the final decision is the client’s responsibility. Remember to document this discussion.
With the number of changes resulting from Tax Reform, I recommend using checklists to reduce the risk of Tax Reform related omissions.
The Fun is Just Beginning
After busy season, the fun continues. Tax Reform will have lingering effects on extended returns and may result in separate consulting engagements.
Additionally, despite Kansas not yet enacting legislation similar to Wayfair, other states have, and your clients may be affected. Accordingly, you should explain the Wayfair decision and its potential impact upon clients. For more information, review the AICPA’s Wayfair guidance.
To learn more about mitigating the risks related to Tax Reform consulting and Wayfair, read Addressing risks related to the TCJA and Wayfair.
Join the Discussion!
What protections or procedures has your organization put in place to alleviate the risk of professional liability claims due to the TCJA?
How do you see the effects of the landmark Wayfair decision impacting Kansas policy in the future?
The Ignite blog is an official publication of the Kansas Society of CPAs.