Ethical - Double Claim

[Snaggletooth]

Elderly nursing home patient still owns property. Among the holdings is 200 acres in Double Claim, KY. Mr. A, his son, has power of attorney.

Mr. A is also the tax matters partner for the Three Fangs Partnership. Same nursing home patient owns 1/4 of Three Fangs Partnership. Four original members of the partnership are all old, deceased, etc. and one of them has died and left his share of the partnership in a trust for his children, including Ms. Z the fiduciary for this estate.

An attorney for Ms. Z's trust had the assets of the partnership appraised upon death of the original member.

Listed among the partnership assets are the 200 acres in Double Claim, KY. These same 200 acres are above-described as 100% owned by the nursing home patient. His son, Mr. A, has no knowledge that these 200 acres are also listed as partnership assets in the trust.

The nursing home patient, Mr. A, and Ms. Z's trust are all clients of mine. Not sure whether relations between Mr. A and Ms. Z (first cousins) are harmony or acrimony.

I've got my own idea of what my ethical responsibilites are. But I want to hear from the someone else. Obviously the names and numbers have been changed such that reality would be a coincidence. Feel free to respond...

[erchess]

Wow

I don't like this very much but I'm under the impression that you can't reveal anything to anyone without written permission which might be hard to get (gross understtement). I think as a practical matter I might withdraw from all three engagements telling all parties that someone involved is messing up and you cannot comment further.

You can ask your contact person at the trust (Ms Z or a lawyer?) to rectify the situation or find another accountant but first don't you need Mr A's permission to reveal the fact that the old man and Three Fangs are also clients and your understanding is that the land in question is owned by the old man not the Parthership? And what can you tell him without signed permission from the trust? I realize that in reality each party knows that you work for the other two but I don't think you can rely on that if you get sued.

It would help if you could state that someone at the trust is trying to pull a fast one and that somehow waives your opbligation of confidentiality to the trust but I have two problems with that. For one thing I can't see how Ms Z would benefit since should she apply for a loan title to her alleged assets would surely be verified and for another I don't think anything wrong done by a client other than failure to pay us changes our obligations to them.

[Gary2]

I think as a practical matter I might withdraw from all three engagements telling all parties that someone involved is messing up and you cannot comment further.

Great answer overall. Other than changing "someone involved is messing up" to "I've learned that I can't do both, and the only fair thing is to not do any" (or something else more diplomatic), that's probably the best approach.

But I do wonder about the ethics of one possible alternative. Real estate deeds are normally public record. One could check with the registry of deeds to determine the true ownership (assuming there's nothing convoluted about the deeds that would require a lawyer to untangle). Since they're public record, you would not be revealing private information by telling one of the parties "I just happened to check, and you're not actually on the deed." The question then is whether revealing the act of checking is tantamount to revealing that one of the other parties has something questionable going on.

[snowshine]

Perhaps you could phrase it, "While checking the tax records to verify amounts on your return, I discovered that the county has the deed still listed under {the name of client}. Can you shed some more light on this for me?"

[erchess]

I like the way you guys think

but it strikes me as the road to ruin for the tax professional unless he or she has a regular practice of checking on the ownership of client properties.

[JohnH]

Well, he might not check every client's info, but maybe it's his practice to check all partnerships and LLC's for example, just as a client accommodation of course.

[erchess]

John H

What you say makes sense if it is actually his practice that actually began some time before this matter came to light. I just can't imagine having that practice myself because I think clients don't hire me to help them keep track of what they own themselves, what they own through which entities that they own shares of or own outright, and what is not theirs at all. Ron can't afford to make a dubious assertion much less tell an outright lie because he might need to repeat it under penalty of perjury or just concede fault in a lawsuit.

[JohnH]

Yes, that's all true of course. I'm not suggesting that he lie. But every policy had to begin somewhere and some time, so it could just be a fortunate coincidence that he began doing it this year...

[erchess]

Gary

The point of my admittedly undiplomatic way of phrasing my withdrawal was to come as close as possible to disclosing everything to everyone so that hopefully the matter gets straightened out sooner rather than later. I would expect the trust to think "Ok he's on to me maybe I should come clean before things get worse." and A to think either the same thing or "So someone is being dishonest or stupid. Since it isn't me and Ron doesn't do the 1040s of the other owners of Three Fangs then it must be the trust. I wonder what it is and how much my cousin knows?".

[erchess]

Fortunate coincidence

Yes, that's all true of course. I'm not suggesting that he lie. But every policy had to begin somewhere and some time, so it could just be a fortunate coincidence that he began doing it this year...

I think if he began the practice more recently than a year before he discovered this mess or if he doesn't have records of the check in files he can redact client identifying info out of or show the judge as they are he's sol if the lawyers get involved.

[Burke]

but it strikes me as the road to ruin for the tax professional unless he or she has a regular practice of checking on the ownership of client properties.

Well, as Gary2 said they are public record. And easily checked. And I used to do it regularly for a client whose numbers were sometimes questionable. A quick printout of the real estate taxes gave me the accurate answer. (He often included interest and penalties for paying late.) Had he given me the actual bills, I would not have had to do that. Does elderly nursing home patient still file taxes? Who pays the real estate taxes? All paid by nursing home patient? All paid by partnership? Trust? One of these entities is deducting them or a part of them, I would think. That issue alone is reason enough to check it out. A side effect of the tax bill is that it shows valuation and ownership.

[snowshine]

I check our local tax records several times a day for various reasons. Saying that I noticed a problem with one entity claiming ownership over a property the tax department lists with another owner is routine as our county doesn't update the ownership status until the year after sale. If anything like this situation exists in his area, I certainly think Snaggletooth can pose the question as part of good client service.

[Lion]

Check Online

I check property taxes online at the various town web sites. Wish all of them had it online. But, similar issues: client tells me what he paid but not how much was tax vs. late fees, client just says SALY, client gives me two or four identical payments but I know all the surrounding towns are on fiscal years with rates going up each 1 July, etc.