Reinforcing the Importance of E&O Insurance
A recent Tax Court ruling highlights the importance of errors and omissions insurance for accounting professionals. At issue is the valuation of stock that the taxpayer donated to charity.
The taxpayer owned stock in a variety of medical service corporations and was in the process of consolidating the corporations into a single entity. During this process, the taxpayer donated stock to charity and took a deduction which valued the stock at $401 per share. The Internal Revenue Service challenged the accountant’s valuation because it treated the entities as going concerns, even though they were being consolidated into the single corporation. The Tax Court agreed with the IRS and revalued the donated stock to $37 per share. In addition, the Tax Court imposed accuracy-related penalties on the taxpayer. Undoubtedly, the taxpayer is now looking to his valuation expert for relief.
It is for these situations that accountants have errors and omissions insurance. Even the most minor of mistakes can cause substantial problems for clients, and without such coverage, a firm would certainly not survive the first claim against it.
Source: Bradley Bergquist, 131 TC No. 2 (Tax Ct.).
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