Conflict of interest can get in the way of independent representation in a divorce or business dispute.
Divorce often results in a conflict of interest. In the context of divorces, a conflict of interest occurs when the advice of the CPA may provide a benefit to one spouse at the expense of the other spouse. Sometimes a second CPA must be hired to ensure independent representation of both parties. While the added expense is unfortunate for the taxpayers, there may be no choice.
When working with a couple going through a divorce, a CPA should be concerned about conflict of interest in these situations:
- One spouse’s interests are directly adverse to the other spouse’s interests;
- There is a significant risk that the services to one spouse would be materially limited by the responsibility to provide services to the other spouse; or
- The CPA’s objectivity is impaired because of the relationship of the spouses to the CPA
Examples of Conflict of Interest in Divorce Cases
Here are some examples that illustrate potential conflicts of interest in divorces:
Example 1: A CPA represents a married couple for years. Now they want a divorce. However, both parties want to continue to use the same CPA. Conflict of interest may arise if the returns contain a tax position that benefits one spouse and hurts the other spouse. For example, prior to the finalization of the divorce, one spouse may want to file a joint tax return and the other spouse might prefer to file separately. Or, the CPA may be asked to disclose information that is confidential with respect to either party.
Example 2: A CPA represents a married couple in a tax collection case. As a result of the representation, the IRS deems the couple to be currently not collectible. The IRS puts the tax on hold and stops all collection activity. Later, the couple divorces. Here too, both parties want to continue to use the same CPA. A conflict of interest may arise if the CPA helps one spouse to successfully negotiate an Offer in Compromise with the IRS after the divorce. The other spouse may object to becoming responsible for the balance of the tax.
Example 3: The result is similar in a business context. It is common, for example, that a CPA represents both a business and its owners. However, a conflict of interest may result if there is a dispute among the owners. In such a case, the CPA may represent the business, but each owner should hire their own CPA to represent them individually.
CPA Conflict of Interest Waiver Letter
A CPA may represent both parties when there is a conflict of interest, as long as the parties are aware of the conflict and agree to waive their concerns. The CPA conflict of interest waiver letter should be done in writing. If both parties refuse to sign the waiver, the CPA will have to withdraw from the engagement.
Importantly, the CPA must also believe that he or she can perform the service with objectivity, competence, diligence, and integrity. Otherwise, the CPA may not represent both parties. When in doubt, the CPA should withdraw from the engagement.
What a CPA Can Do in Divorce Cases and Business Disputes
Divorce and business disputes are often stressful and painful. Often the stress and pain relates to finances, money or property. Our CPA firm, consisting of CPAs, EAs, tax accountants and bookkeepers, helps the parties to a divorce or business dispute to navigate the waters. Our goal is to present the facts in a neutral manner, alleviating the pain and stress associated with a complex and emotional situation.
The following are some of the services that our CPA firm provides for divorces and business disputes:
- Review tax returns for relevant issues
- Determine the income and expenses of each party
- Determine tax ramifications of property settlement alternatives
- Analyze joint and separate tax liabilities
- Review and summarize IRS tax transcripts
- Project financial needs based on spending history
- Prepare budgets for life after the divorce or dispute
- Represent taxpayers before the IRS in matters of innocent spouse relief
- Represent taxpayers before the IRS in matters of injured spouse relief
- Represent taxpayers before the IRS and the state department of revenue to resolve tax disputes and audits
- Clean up and maintain bookkeeping and accounting records for closely held businesses
- Plan for taxes after the divorce or dispute
- Prepare tax returns for individuals and businesses
- Assist with completion of financial paperwork
- Work with authorities regarding requests for records
Give us a call at 678-235-5460 or 773-828-0551 to discuss your tax and accounting situation.
Or reach out to us by email at gary.massey@masseyandcompanyCPA.com.
Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, sales taxes and small business accounting and bookkeeping.