Tax Tip – Documenting Advice and Decisions

Failing to document important information is a common mistake that often leads to claims. If it is not in writing, it may be presumed later in court that it didn’t happen. Juries and the public generally consider CPAs to be experts in documentation, and falling short of that expectation when faced with a liability lawsuit may be viewed as negligent and below the standard of care.

CPAs are expected to advise clients of opportunities, to warn them of risks, and to document important advice, warnings and client decisions. A series of documents are often needed in an engagement. For example:

  • All significant client meetings should be documented with a written description of the subjects discussed at the meeting. This will help ensure that both you and the client are proceeding with the same expectations and assumptions.

  • "Informed consent” letters should be used in certain situations, such as Sub-S or C corporation selections or conversions, estate tax planning, and aggressive or gray tax positions. The letters help clarify that the CPA advised and informed the client, and the client agreed with the advice. Without this letter, it is easier for claimants to make it appear that the CPA made the decisions on behalf of the client. The letter will help prevent the client from successfully asserting later that your firm is responsible for unexpected events and for less-than-optimal results.

  • Written confirmation should be obtained for the amounts used for calculations, such as those used with tax extension payments. The client can review the information along with the tax extension payment form and change any of it that is incorrect. The client can also send the data via email or fax, which becomes part of the records, support and documentation—always critical in the event of a dispute.

Documentation should be factual, professional, and without personal comments that may be inappropriate and damaging to the integrity of the documentation. Remember that the documentation may eventually be presented to the "ladies and gentlemen of the jury"—a standard that can be used to determine the adequacy or appropriateness of your documentation.


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