By CPA Mutual
Exercising due diligence is a big deal to the IRS.
CPA Tim W. Kaskey discovered that the hard way. He was disbarred for failing to exercise due diligence in preparing tax returns for a corporation and its husband and wife shareholders. The Office of Professional Responsibility (OPR) won an appeal involving issues that include the due diligence responsibilities of a CPA under the Rules of Practice before the IRS (Circular 230).
Kaskey, a CPA and tax adviser, also prepared individual and corporate tax returns. According to the OPR, Kaskey failed to exercise due diligence under Circular 230, Section 10.22, when he didn't determine the correctness of the representations he made to the IRS on the tax returns of a corporation and its married shareholders. The office also alleged that Kaskey failed to comply with the requirement to advise clients of potential penalties and any opportunities to avoid such penalties by disclosure contained in Circular 230, Section 10.34(c), formerly Section 10.34(b).
Kaskey did not respond and did not appear at the administrative proceeding. The administrative law judge viewed his behavior as an admission of the allegations and entered a default judgment for disbarment. When Kaskey appealed, the Treasury Appellate Authority reviewed the case and agreed that disbarment was proper.
Kaskey defended against the due diligence allegations by arguing that his clients had misrepresented their income to him.
However, "it was inconceivable that [the individual taxpayers] could pay their living expenses based on the income reported on their returns," the appellate authority said.
In the authority's view, the evidence showed that Kaskey did not use due diligence when preparing these returns.
"Practitioners who think OPR isn't serious about due diligence should take heed," said OPR Director Karen L. Hawkins.
According to Hawkins, diligent CPAs will pay attention to "the implications of information already known" and "make reasonable inquiries if the information furnished by a client appears to be incorrect, inconsistent, or incomplete.
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