While this is a central issue in the sale of any business, CPAs and tax practitioners should also consider other important issues that could have an impact on professional liability, legal compliance and client relations.
WORK IN PROCESS
Tax-filing due dates and client year-ends should be considered in the selection of a sale date. This allows the practitioner to cease accepting new engagements and complete work in process prior to the sale to maintain quality control over client services. Work in process that is begun by the seller and completed by the buyer exposes both parties to liability if a claim arises. Moreover, it complicates ownership of engagement working papers.
WORKING PAPERS
Working papers, whether electronic or hard copy, are the property of the firm that created them. Maintaining control and access to working papers is critical to the defense of any malpractice claims made at a later date. Former clients may request copies of working papers to support their tax returns when audited by taxing authorities. Selling the business does not end obligations to maintain working papers.
Moreover, CPAs and tax practitioners are subject to privacy and confidentiality obligations under professional standards, as well as federal and state laws. Client files cannot simply be handed off to a buyer. Practitioners should consult with competent legal counsel prior to making any commitments to the buyer regarding the transfer of working papers in connection with the sale.
INFORMING CLIENTS
Inform clients in writing of the planned sale to manage transitions in client service and to avoid missed deadlines or lost business. The notification process should include the following steps:
1. Reach agreement with the buyer on the timing and methods to be used to inform clients about the sale.
2. Create a plan for when and how clients will be notified.
3. Draft a generic, written communication to all clients that:
Notifies them of the sale and the effective date;
Informs them that the buyer is solely responsible for services performed after that date;
Provides contact information;
Encourages them to direct any questions to the seller by a specified date to allow sufficient time to respond prior to the sale; and,
Includes a written consent form that, when signed and returned by the client, allows the transfer of confidential information to the buyer.
INSURANCE COVERAGE
All claims or other matters that should be reported under the policy terms should be made to the insurance carrier prior to both the sale closing date and the expiration date of the policy. The firm can purchase an endorsement that extends the period of time that a claim may be reported under a policy in the event it ceases to do business due to sale, merger or dissolution.
Selling a practice or retiring from practice is a significant event. So, CPAs and tax practitioners should consult with both the firm's insurance agent and legal counsel with expertise in contract and professional liability law prior to entering into sale negotiations. Doing so can help avoid missteps that could lead to disciplinary actions, civil and criminal penalties, and malpractice claims or lawsuits.
