Assignment 10-2: Professional Malpractice Tashia Fouch Capella University BUS-4115: Business Law in Accounting Professor Khaled Ghany September 2023
In Guerrero v. McDonald, Jeffery Guerrero's business was audited and he was found to owe more taxes to the IRS, so he hired a CPA named James McDonald to represent him and his business in his appeal to the IRS. The initial appeal failed, so McDonald helped Guerrero prepare for an appeal to the Tax Court. That appeal also failed, so Guerrero sued McDonald, claiming that he had failed to adequately prepare and present the facts of the case on his behalf, causing him to lose his case and two appeals. Guerrero's suit contended that McDonald should be held liable for all of the additional taxes he now owed. At issue is whether McDonald can be held liable. Under the Internal Revenue Code, accountants can be held liable for violating tax laws and could face felony charges for certain violations. For example, if a CPA prepares a false tax return or assists a client in preparing a false tax return, that CPA will face felony charges under internal revenue code 26 U.S.C. Section 7206(2). And according to 26 U.S.C. Section 7206(2) of the code, accountants can face monetary penalties/fines for knowingly understating a client's tax liability (Clarkson, Miller & Cross, 2017). In this case, I do not believe that McDonald is liable for the additional taxes that Guerrero owes the IRS. It's clear that Guerrero was found to owe the IRS debt prior to contracting the services of McDonald. Further, if McDonald prepared documents based on Guerrero's true financial status and standing, then he exercised due care as an accountant and is not liable. The likelihood is that Guerrero's financial situation is the reason why he owes the IRS, and a good CPA will not try to alter your financial statements for the purpose of deceiving the IRS, so McDonald has zero liability in this case, unless Guerrero can prove that McDonald did not perform his duties with integrity and due care.
References Clarkson, K. W., Miller, R. L., & Cross, F. B. (2017). Business Law: Text and Cases (14th ed.). Cengage Learning US. https://capella.vitalsource.com/books/9781337514422
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