Figures: tax year 2026
A tax return preparer, including a certified public accountant (CPA), owes clients agreed performance and reasonable professional care. Liabilities to clients and third parties depend on the claim's required relationship, conduct, and caused loss.
An engagement letter records the agreed services, responsibilities, deadlines, and deliverables, providing evidence of the preparer's contractual undertaking. An agreement to prepare a return may differ from an agreement to transmit it or pursue a refund.
Client letter one: original engagement excerpt
Lena Park, a CPA, will prepare and electronically file Juniper Studio's Year 1 federal return by its original filing deadline in Year 2. That contractual deadline remains unchanged if a filing extension exists. Park will provide a completed return, filing acknowledgment, and notice of unresolved information requests. Juniper will provide complete records and filing consent before the agreed preparation cutoff, review the completed return, and promptly answer questions. The engagement includes no audit, financing opinion, or third-party deliverable. Additional services and identified third-party purposes require a separate written agreement.
Common mistakes
- Every tax bill is damages. The correct tax already owed does not become caused loss merely because a preparer initially omitted it.
- A named bank always qualifies. Near-privity still requires the jurisdiction's linking conduct; intended-beneficiary contract status requires its separate legal basis.
- Gross negligence proves fraud. The governing mental-state or special-relationship requirements still control, together with the remaining claim elements.
Bottom line
- Engagement scope determines promised services, while reasonable professional care governs accepted work.
- Contract rights can extend to qualifying intended beneficiaries as well as contracting clients.
- Negligence requires duty, breach, factual and proximate causation, and actual loss.
- Tax owed regardless of the breach differs from additional costs or lost benefits caused by deficient preparation.
Exam shortcut
Identify the plaintiff and claim first. For a lender, locate the stated third-party rule before treating its reliance as legally protected. Mark the promised service, effective deadline, known recipient, intended transaction, and actual communication. These facts resolve different elements. Test causation with a competent-performance comparison: determine whether the exact alleged loss would still exist if the preparer had performed correctly.
The full lesson (about 5,652 words, 38 min read) adds 5 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.D1
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