Tax Advice via Email Liability

Example:

Client's email: "Can I deduct HOA fees for my rental?"

Tax Preparer's email response: "Yes, HOA fees are deductible"

Lots can go wring with this answer. For example, what if the losses become PALs and the client was counting on the deduction to be below a threshold for a child's financial aid?

Perhaps this specific example is silly, but I hope you get my point. There could be misunderstandings and other unintended consequences with simple answers like this.

A more proper answer would be to provide the publication reference, but even that is going to leave things out.

Really, any "simple" tax question would need 5-10 pages of text to answer adequately.

...

So how do you handle these?

Are you not concerned at all about liability from these? Are you concerned a little? Or are you concerned a lot?

Would your professional liability cover lawsuits resulting form misunderstandings?

Risk mitigation also involves maintaining a client base that understands high level concepts when applicable, including the Sec 469 PAL rules.

If you have that, your concern becomes a non-issue. And, it's really a nonissue if we think through it, but that doesn't mean we won't waste time and money on "that client".

A client who is relying on a tax refund to pay for children is a risk IMO. Perhaps not a high risk, but a risk that needs to be analyzed and weighed. If answers to their questions are that "mission critical", perhaps you need to raise their fee to include regular and recurring air-tight projections, or send them elsewhere. That may seem harsh to some, but it's the objective reality when we consider compensation for risk and our sleep quality.

I completely agree with most of this analysis, and yes, of course I am getting paid to answer...

But it's not just this specific question I am concerned with, that was just an example.

It's ALL email questions in which I'm concerned. With our large client base, I get one or two each week.

I feel like most email answers create a lawsuit risk waiting to happen and I wonder if most situations are covered by most professional liability insurance policies.

Perhaps it's not as high of a risk that I think it is....?

What do your engagement letters say?

Mine state that it may or may not be appropriate to proceed based on advice contained in an email vs formal advice for which we have a separate engagement letter and a memorandum on company letterhead is issued as the final workproduct.

An incomplete answer to an incomplete question does not lead to liability. A better answer though would be "Based on the facts you presented, the answer generally is ..."

I like using words like "typically" "generally" and "usually" for this very reason.

When I give advice via email I make sure that I include what the advice is based on.

I like using words like "typically" "generally" and "usually" for this very reason.

This is what I do. "Yes, usually HOA are deductible" Which is true. Whether that leads to a loss and all that entails is a totally separate question that wasn't asked.

Remember the days when we had to disclaim tax advice with a statement that the advice given should not be construed as tax advice?
Pre-2014.

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, we at <>, must inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document.

What do your engagement letters say?

Mine state that it may or may not be appropriate to proceed based on advice contained in an email vs formal advice for which we have a separate engagement letter and a memorandum on company letterhead is issued as the final workproduct.

It does say something like this in my agreement. And, now that you mention that, I think it can't hurt to provide a similar disclaimer on each email that contains these answers as well.

I like using words like "typically" "generally" and "usually" for this very reason.

And this.

Remember the days when we had to disclaim tax advice with a statement that the advice given should not be construed as tax advice?
Pre-2014.

IRS Circular 230 notice: In order to comply with requirements imposed by the IRS, we at <>, must inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document.

And it probably can't hurt to have something like this in there too.

I think I will create a simple "can" to include a disclaimer (and also use language like "usually/generally" etc.)

I have a disclosure statement on all my emails as part of the signature field, saying my answer may depend on other specific details. Good enough to say don't hold me to it?!

Tax Advice Disclaimer: Information provided herein may be general in nature or based on previous communication, so may not be applicable to the recipient's specific circumstances and require a more in-depth analysis of tax issues involved.

Same as above.

Legal Notice: Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, my firm would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

Borrowed from a firm with much deeper pockets than mine.

As a total aside.... I tell clients when they text me. "I am NOT permitted to give tax advice via TEXTS. So I never, ever respond to a text with anything technical. I tell them it would void my E and O policy.

When they E mail me a question......I also tell them if I can't respond in 1 minute, that is, it's a simple question, procedural or basic. I MUST respond later and that includes an invoice.

Something like this...


"That question would require me to go to our online research library and provide a written response. Our fee for that is a minimum of 1 hour. Are you OK with a $200 to $300 written response."

I tell clients there's no way I'm using my phone to type tax advice plus I save all correspondence and saving a text is a nuisance. I ask that they email me their questions and go from there.

As a total aside.... I tell clients when they text me. "I am NOT permitted to give tax advice via TEXTS. So I never, ever respond to a text with anything technical. I tell them it would void my E and O policy.

I tell clients there's no way I'm using my phone to type tax advice plus I save all correspondence and saving a text is a nuisance. I ask that they email me their questions and go from there.

+1

I will not also write more than a paragraph or so via email. If that is needed, I make them call me. I can't write 4 page email walls of texts all day.

In my opinion, based solely on the question presented, and not knowing anything else about the client's tax situation, the preparer's response in your hypothetical is incorrect. So yes, I do think there's potentially liability there.

Of course, if you know the client's situation, that's different, but even if you want to state, what is effectively a "will" opinion, you need to make it specific to that client and the particular property you're aware of. Something like "yes, based on our understanding of your operations, hoa fees imposed on your property at 123 main dr may be deducted on your return."