Wealthy Clients Can Present Pitfalls For Accounting Firms

Lawsuits involving audits of public companies have gotten the lion's share of the media's attention in recent months. But state tax returns and other services provided to wealthy individuals still present a multitude of pitfalls for accounting firms of all sizes. Two recent cases show how these pitfalls can and do turn into nightmarish negligence lawsuits, no matter how popular and well-regarded the clients.

Michael Eisner, chairman and chief executive officer of Walt Disney Company, and his wife recently filed a lawsuit against their accounting firm for failure to give correct advice on preparing and filing California state income tax returns. The lawsuit claims Mr. and Mrs. Eisner had to cover $3 million in unpaid state taxes and interest. The returns were prepared by Executive Monetary Management (EMM), a wholly-owned subsidiary of New York-based Neuberger Berman Inc.

According to an article published by the Associated Press, EMM acknowledged there were errors in the calculation of the taxes due to contributions of appreciated stock to private foundations. EMM told the state Franchise Tax Board the errors occurred because the firm was unaware that California law did not conform with a 1996 extension of a federal rule on the subject.

Separately, pop singer Elton John tried again to reopen a lawsuit against his former accountants, PricewaterhouseCoopers (PwC).

Mr. John claimed that his manager, not he, should pay the costs of tours amounting to $10.5 million, and he said PwC was negligent because it failed to advise him that he was paying the touring costs. A British Court of Appeal refused to allow him to reopen the case. The British courts have described the case as a "melancholy truth" that involved a man with "an uncommonly generous disposition" and great intelligence, who had "little or no interest in business matters."

-Rosemary Schlank

You may like these other stories...

While reputational risk is the No. 1 nonfinancial concern among corporate directors, cybersecurity/IT risk is gaining steam. In fact, both private companies and organizations with more than $1 billion in revenue felt they...
We've all been there. Trying to make our work-lives more efficient, transfer knowledge to newer team members, and leverage our practices. Sometimes it works, and sometimes, well, the result is embarrassing at best.Here...
From May 20-23, the Association for Accounting Marketing (AAM) held its annual conference. Frequent contributor Sally Glick picked up some ideas that she will be sharing with us in the coming days, as she has done in...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.