Negligent Misrepresentation

A potential client who was disenchanted with his current tax accountant met with a new CPA. During the initial interview, he mentioned he wanted to alleviate the tax burden associated with a gain on the sale of property. In fact, he asked the CPA for advice regarding a “tax shelter” he had heard about at a dinner party. The CPA outlined the high risks associated with such a shelter. The potential client thanked the CPA and left his office. The CPA did not hear from this individual again.

Later, when the IRS challenged this individual’s position, back taxes, penalties and interest were assessed. The individual filed suit against many parties, including the CPA he had met with once. Although the CPA eventually was exonerated, the litigation resulted in a tremendous loss of billable time and his insurance deductible.

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