An accountant prepared income tax returns and provided consulting services for a contractor for several years. The client also employed an in-house bookkeeper.
The state department of revenue conducted a Sales and Use Tax Audit of the client.
- The audit revealed that the client purchased materials out of state that were used on in-state jobs.
- These materials were subject to use tax, but the client did not remit the tax.
- The outstanding taxes plus interest totaled approximately $100,000.
The contractor sued his accountant, alleging that tax preparer failed to advise him of the need to remit the tax. The taxes due were on closed jobs that had concluded several years earlier and therefore were not recoverable from the contractor's clients.
In his defense, the accountant claimed that he was engaged only to prepare income tax returns and provide some limited consulting advice. He presumed that the contractor’s bookkeeper was advising and following up with the owner regarding sales and use tax obligations. The owner alleged he relied on the accountant for all tax-related advice.
Due to the fact that there was no written agreement, such as an engagement letter, between the accountant and the client defining the scope of services to be performed, the matter was settled out of court.