CPA Disbarred for Failing to Exercise Due Diligence

The Internal Revenue Service has won an appeal against a CPA who was disbarred for failing to exercise due diligence in preparing business and individual tax returns for a corporation owned by a husband and wife who claimed improbably low incomes.

The IRS’s Office of Professional Responsibility prevailed in an agency appeal with the Treasury Appellate Authority on May 28 upholding the disbarment of Tim W. Kaskey, a Florida-based CPA. The decision of the Appellate Authority upheld an administrative law judge’s earlier disbarment of Kaskey, finding, among other things, that he failed to exercise due diligence in preparing tax returns for a corporation and its husband and wife shareholders. 

“This is yet another decision highlighting that practitioners have a duty to the system as well as to their clients,” said OPR director Karen L. Hawkins in a statement. “Practitioners who do not take this duty seriously can expect to be held accountable.”

OPR alleged that Kaskey failed to exercise due diligence under Circular 230, Section 10.22, when he failed to determine the correctness of the representations that were made to the IRS on the tax returns of a corporation and its married shareholders. OPR also alleged that Kaskey’s misconduct included a failure to comply with the requirement contained in Circular 230 to advise clients of the potential penalties and any opportunities to avoid such penalties by disclosure.

When Kaskey failed to respond, or appear, at the administrative proceeding, the administrative law judge deemed the allegations against Kaskey admitted and entered a default judgment for disbarment. Kaskey then appealed. On review, the Treasury Appellate Authority agreed that disbarment was proper. 

Kaskey defended against the due diligence allegations by arguing that his clients had misrepresented their income to him. The Appellate Authority observed that there was “a great deal of evidence reflecting the lack of due diligence by [Kaskey] in the preparation of these returns … [and that] it was inconceivable that [the individual taxpayers] could pay their living expenses based on the income reported on their returns.”

The judge also found that the officer compensation reported on the corporate return did not match the wages reported on the returns of the couple, even though they were the only officers of the corporation. In addition, the corporate books clearly identified personal items of the couple that were being paid by the corporation with no loans or distributions being shown on the corporate returns.

“Practitioners who think OPR isn’t serious about due diligence should take heed,” added Hawkins. “Practitioners may not ignore the implications of information already known, and must make reasonable inquiries if the information furnished by a client appears to be incorrect, inconsistent or incomplete.”

Kaskey did not immediately reply to a request for comment.