The Enrolled Agent Tax Consulting Practice Guide by Christy Pinheiro

Author:Christy Pinheiro [, Christy Pinheiro, EA ABA®]
Language: eng
Format: epub
Publisher: Christy Pinheiro
Published: 2016-07-26T00:00:00+00:00

Chapter 6

Protect Yourself from Claims

“The best measure of a man’s honesty isn't his income tax return. It’s the zero adjust on his bathroom scale.” -Arthur C. Clarke

Everyone Makes Mistakes

Everyone makes mistakes. We’re all human. You have to protect yourself from claims, follow practices that will limit your liability, and carry liability insurance. This won’t eliminate the risk, but it will help mitigate serious issues.

Most tax professionals carry some type of liability insurance. Typical insurance coverage is designed to cover claims that are a result of practitioner errors or negligence.[20] The most common claims are for mistakes that occur during the preparation of tax returns.

On average, claims settle for $15,000 to $40,000. Few claims exceed $500,000, but it does happen.[21]

In most cases, policy coverage is between $100,000 and $2 million. All CPA firms and attorneys carry liability insurance as a matter of course. Practitioners who sell insurance products or mutual funds typically purchase a separate policy to cover those activities. Insurance, real estate transactions, and securities transactions typically require an additional policy.[22]

In order to qualify for Errors and Omissions insurance, the majority of your income must be from tax preparation, bookkeeping, or other accounting services.

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