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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6181
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I have a client who had a CPA that messed up the books...we

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I have a client who had a CPA that messed up the books...we have to amend the 2011 tax return for items he forgot and he basically used an accrual based income statement and tried to convert it to cash to use for the 1120S for 2011. The retained earnings are so off there is no way to tie it back....I went back prior years and the retained earnings match no financial statements the client has...we do not know what the correct numbers are. We decided that the only way to make sure there are correct numbers is to go back to when the company incorporated and track the retained eearnings and the other entries, so we can get the client a clean set up books...the old accountant has no back up paperwork to support anything. Can I go back an legally charge the old CPA for having to clean up his mess with this client and having to amend incorrect tax returns???

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

Can you "legally" charge the old CPA? Sure, but I wouldn't plan on collecting anything if you do. If the prior years are indeed incorrect, it would be up to your client to make any claims against the old CPA. The client may attempt to get the old CPA to make a settlement with him and to notify his liability insurance company of your client's claim, but I wouldn't hold my breath. The point being that he would have to show "damages" in order to collect and if the "damages" are your fees, the old CPA could claim that your work was unnecessary. By the time it all got sorted out, the only thing that your client will most likely have is a lot of unpaid fees and unhappy accountants and a confused client. My guess? You'll both be out of a job.

Stephen G :

The best thing may very well be to either take a "Macro" approach to the problem if you can get comfortable with the ending balance sheet, you can determine the exposure with the retained earnings at the beginning & end of the current year (presuming you can come up with a reasonably accurate income statement for the year) & just go forward, not worrying about the prior year retained earnings.

Stephen G :

OR

Stephen G :

If you are so concerned about the dollars involved as well as the client reliability and accuracy of their representations to you; you may be better off withdrawing from the engagement.

Customer:

client is so straight forward, she has records of everything and is very accurate...the only way to figure out where the old CPA's mistakes were are to go back and see where the numbers tied out. I feel he really messed up on the income for 2011 and it wasy way higher then reported too...they will have to amend and then have some large penalties and interest. I just feel really bad

Customer:

I can send him my bill...the worst he can do is deny it? But do I have a legal right to collect.....

Customer:

It was necessary to go back and amend and clean up, for the numbers he was would not be able to be supported in audit

Stephen G :

No. You don't have any right to collect for something you weren't engaged to do. You can bill your client and they can send the bill to the old CPA, but again, who is going to pay needs to be decided up front. You are asking for trouble to just bill the old CPA.

Stephen G :

If that was the reason to do that work (has it already been done?), then it wouldn't have necessarily have been necessary to do without giving the old CPA a chance to do it himself or as a minimum to agree to accept responsibility for whatever problems arise down the road.

Customer:

Your right....I like the idea of billing the client and she can pass it on...she does not want to give him the opportunity to do the work.....

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