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Accountants Should Be Aware of New Filing Season Risks

S.J. Steinhardt
Published Date:
Nov 10, 2022

GettyImages-1045301848 Couple Married Filing Taxes Reporting Income Black

Filing season is almost here, and accountants need to be aware of issues that could make them liable to charges of negligence, incompetence or malpractice, Accounting Today reported.

The most prominent issue facing accountants this year is the involvement of third parties in the return process. Recently, the IRS warned employers to be aware of third parties promoting improper Employee Retention Credit (ERC) claims.

“Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit,” the agency stated on Oct. 22. "These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business' federal income return must be reduced by the amount of the credit."

In an interview with Accounting Today, Deb Rood, risk control consulting director for CNA, the underwriter for the AICPA Professional Liability Insurance program, recommended that practitioners add a provision in their engagement letter providing that the CPA will have to evaluate the third party's work; that the client understands that the position may be challenged by the tax authorities; and that the CPA firm is not responsible if the position is disallowed by the tax authority.

Stan Sterna, vice president for Aon, the broker and national administrator for the AICPA Member Insurance Program, suggested updating engagement letters before filing season. The insurance industry also anticipates liability claims in connection with ERC fraud, he told Accounting Today.

Rood also advised CPAs to familiarize themselves with new provisions of the Inflation Reduction Act.

“Clients may expect their CPAs to tell them about all of these opportunities,” she told Accounting Today. “The engagement letter should specify that the CPA is not obligated to tell the client about every possible tax incentive." She added that the engagement letter should also guard against claims arising from oral advice from the CPA. 

Two season-specific concerns have to do with the burden of reporting for passthrough entities (IRS Forms K-2 and K-3), and state and local taxes for business clients with employees working remotely, Camico tax analyst Anthony Cooper told Accounting Today.

“The CPA firm should make sure they possess the necessary competence to properly complete the forms and to assist clients in determining whether additional forms are required,” he said of the former. “In regard to the state and local tax issue, it is crucial to have an engagement letter that clearly defines the scope of the services.”

One more issue is that of cybersecurity.

"The cyber criminals are aware that preparers are under heavy pressure,” said Jock Wols, chief executive officer of insurance broker RiskDesk. “From their perspective, the small practitioner may not be as lucrative as a Fortune 500 company, but they present a much easier target. Everyone has to understand that they are at risk."

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