Taxpayers are entitled to independent representation.
However, divorces or other situations with competing points of view often result in a conflict of interest. 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.
Divorcing taxpayers should expect their CPA to be concerned about a conflict of interest if the following are true:
- 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
Here are some examples that illustrate potential conflicts of interest:
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 will then become responsible for the balance of the tax, to which they may object.
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.
Conflict of Interest Waiver
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. This waiver 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.
Taxpayers in Atlanta and beyond, give us a call at 678-235-5460 to discuss your tax situation related to divorce or business conflict.