CPAs know it is imperative to refer clients to third party consultants for various issues that require deep specialization in an area of tax. In many ways, these specialty tax firms act as an extension of your team and require coordination to deliver results that often have a material impact on a tax return.

While the CPA firms are regulated and upheld to the highest professional standards, many specialty tax firms are not governed at all. For example, industry-wide certifications and standards have not been developed for R&D tax credit professionals. When a service provider does not uphold the same standards and ethics set forth by the AICPA, then you as the CPA may be responsible. According to the Ethics Rulings in the AICPA Code of Professional Conduct,

“The member remains responsible for the adequate oversight of all services performed by the third-party service provider and for ensuring that all professional services are performed with professional competence and due professional care. In addition, the member must adequately plan and supervise the professional services provided by the third-party service provider, obtain sufficient relevant data to support his or her work product and comply with all technical standards applicable to the professional services.”

In light of these professional responsibilities, here are some precautionary steps every CPA should take to ensure you’re working with the right service providers to support your clients’ best interests.

1. Online Due Diligence

With so much information at your fingertips, it is imperative to take the time to research the companies that solicit your referrals. A simple online search can reveal lawsuits, scandals and other unprofessional conduct that you should be aware of.

2. Look for Certifications Specific to the Industry

Finding a provider that is certified in their field of expertise is a must. In addition to keeping members abreast of changing laws, these certifications also come with ethics guidelines that are policed by fellow peers. For example, Certified Cost Segregation Professionals (CCSP) with the American Society of Cost Segregation Professionals (ASCSP) are expected to uphold the organization’s code of ethics when preparing reports. Find out if your third party provider seeks higher education, upholds standards of excellence and ethics, and is certified with an organization that promotes honesty and integrity.

3. Reputation Among Peers and Competing Firms

Most CPAs cannot distinguish differences between providers because they are not experts in that field. To remedy this concern, lean on the industry’s knowledge and experience. If anything gives you pause with a firm you are working with, call three of their competitors for their opinion. Firms that do things the right way are generally respected among their peers. Similarly, firms that historically make poor business choices and put their clients at risk are known by their peers.

4. Paperwork Is Key, Especially for the Audit Trail

Do they provide a detailed deliverable that can stand on its own in the event of an IRS audit or is it lacking substantiation for its positions? Be wary of firms that provide weak deliverables and suggest their internal file has work papers that will be suitable if audited. Beyond paperwork, the maturity of a company should also be considered. Finding a reputable provider, with a minimum of a decade under their belt, will increase the likelihood they will be around should any issues arise.

5. Gut Instinct

Lastly, pay attention to your gut. If you hear disturbing news from multiple sources about a specialty tax firm you have referred to a client, run away. Many CPAs in this situation are hesitant to tell a client they should switch from a provider they originally recommended. Consider that it’s better your client hear it from you rather than from one of your competitors, or worse, before it blows up on them. As long as you present a new firm you have properly vetted, your client will understand and appreciate looking out for them.

No matter the circumstances, there is a level of responsibility CPAs have when recommending a 3rd party service provider. It’s never worth risking your client relationship by referring a firm that you haven’t properly vetted.

Gian P.  Pazzia

Gian P. Pazzia

Gian Pazzia, CCSP, is a principal with KBKG who oversees the firm’s Cost Segregation practice and is a subject matter expert on the tangible property “repair” regulations.