CAMICO issued a policyholder Alert on the Tax Act last February and continues to provide risk management guidance to policyholders who are addressing the potential implications of tax reform with their clients. CAMICO’s claims experience continues to show that CPAs who successfully manage client expectations are more likely to “get it right” and avoid becoming victims of potential liability exposures.
Risk Management GuidanceSince the impact of the Tax Act may be significant to your individual and business clients, CAMICO strongly recommends that policyholders consider the following risk management steps. This list is not meant to be all-inclusive.
- Send a notification letter regarding some of the significant highlights of the Tax Act to both individual and business clients. The letter should also include a strong call to action message encouraging clients to contact the firm if they feel that they may benefit from tax planning assistance. For defensive documentation purposes, CAMICO recommends the firm maintain, and retain, a list detailing to whom this letter was sent. Refer to CAMICO’s sample client notification letters that are available via a link below and from the Members-Only Site under Knowledge Tree, Alert Documents, 2018, Tax Reform - February 2018.
(Note: Your firm might choose to incorporate this information in your client newsletters or by other methods. What is important is adequately communicating (and documenting!) the significant Tax Act implications to clients that might be impacted.)
- CAMICO strongly recommends that firms establish a suitable time frame for the tax planning engagements, which for many firms may be during the summer months. Firms need to provide themselves with sufficient time to develop the understanding and competencies necessary to be in a position to appropriately assist clients impacted by the Tax Act. However, the IRS may not have provided sufficient guidance for every change. Additional and/or updated planning may be required.
- If engaged to perform tax planning work, be sure to utilize well-drafted engagement letters designed for this purpose. In addition to specifying the scope and limits of the tax planning engagement, special disclaimer language should be included in these engagement letters. For example, clients should acknowledge their understanding that the final regulations have not yet been promulgated, and changes, including technical corrections, may be forthcoming. Refer to CAMICO’s sample client notification letters that are available via a link below and from the Members-Only Site under Knowledge Tree, Alert Documents, 2018, Tax Reform - February 2018.
- Because of the amount of additional time and expense involved, some taxpayers may choose to NOT formally engage the firm to perform tax planning services. However, be wary of those clients who may ask "quick" questions of the firm to solicit some planning guidance. These situations can pose risk to the firm if not adequately documented and/or disclaimed. For example, firms may want to consider having language in their engagement letters that specifies: "It is our policy to put all advice upon which a client intends to rely in writing. We believe this is necessary to avoid any confusion and make clear the specific nature of our advice. You should not rely on any unwritten advice from our firm."
- Given the Tax Act's significant changes related to the flat corporate tax rate and the new deduction for "pass-through" entities, some clients may rethink their choice of legal entity. This type of evaluation and assessment certainly has tax implications associated with it, but be wary of rendering legal advice without a license. Clients will need other advisors, in this case, legal counsel, to help them (as well as you) evaluate and implement changes that may be necessary to maximize their tax benefits.
- Be proactive, not reactive, as you work with your clients. There are many moving parts in these early days so making hasty decisions without all the facts may be premature.
Download sample client notification and tax planning engagement letters:
CAMICO’s sample client notification letters and tax planning engagement letters are also available on the Members-Only Site under Knowledge Tree, Alert Documents, 2018, Tax Reform - February 2018.
Additional ResourcesFor additional information, you can reference the following resources:
CAMICO will continue to develop risk management tools and resources in this area as more information is forthcoming. Please check our Members-Only Site frequently for updates. CAMICO policyholders with questions regarding this communication or other risk management questions should contact the Loss Prevention Department at email@example.com, or call our advice hotline at 800.652.1772 and ask to speak with a Loss Prevention Specialist.