• Risk Management for State and Local Taxes Claims

    Risk Management for State and Local Taxes Claims September 29, 2016

    The AICPA Professional Liability Insurance Program has experienced more claims asserted against CPAs for providing tax services than all other accountants claims combined. While the volume of claims is greater for tax services, the severity, or the dollar amount paid on defense and indemnity, is typically low and usually not fatal to the survival of a CPA firm. However, tax claims related to state and local taxes (SALT) can be an exception. Some reasons for the increased severity of SALT claims include:

    • A client may experience double-taxation if a new state determines that the client must file income tax returns for prior years, but the statute of limitation has expired in other states in which the client has filed. Thus, the client is unable to file amended returns to recoup taxes paid to other states.
    • Liability for uncollected sales tax, which may no longer be collected from the customer.
    • The inability of the client to obtain sales tax exemption certificates from its customers.

    In all three circumstances, the client may seek to recover the additional tax it was required to pay from the CPA. Without question, the labyrinth that CPAs face in dealing with SALT issues increases a firm’s professional liability risk. What can a CPA do to help manage these risks?

    Click here to read more of the AICPA® Professional Liability Spotlight article “Risk Management: worth its SALT” by CPA Deborah K. Rood.

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