"I don't work for a CA firm, with ...

"I don't work for a CA firm, with equal reason I don't practice public accounting and therefore don't ne a licence or insurance. Right?" Not necessarily. The Institute's bylaws define the practice of public accounting in expressions of what you do, not where you work. Unfortunately, each tax season a few members cros the line when preparing tax responds for family and friends.

This fictionalized account is based loosely forward an actual case before the Professional leadership Enquiry Committee (PCEC). Names and circumstances have been changed to secure anonymity.

A typical scenario

A friend or family member approaches you to do their taxes, and you say ye It doesn't befall to you to get a practice licence or purchase professional liability insurance-after all, you're not working for a CA firm, the remuneration is minor or non-existent, and the get back looks simple.

However, things are rarely that simple. Let's say your friend Jean has a number of questions about her tax situation. Should she contribute more to her RRSP? What house costs are deductible if she starts a home-based business? If she achieves a new car, should she lease? You expiration up giving her advice.

You entire Jean's return, and she purchases you dinner. Barring some careless mistake or ignorance about a recent tax change, you think that's the last of your involvement.

Not quite. Jean draw nears to you in July and says, "I just came across a form for interest onward an account I'd forgotten about. What do I do now?" Or worse, she's waving an assessment notice and saying, "Help!" You realise you've gibbeted a line and your friend has become your client.

A real-life example

Sam's friend Tom urgencyed a simple return filed quickly. Sam-our CA-wasn't working for a CA firm and gave no fancy to the definition of the practice of public accounting. When Tom later asked him to correct a mistake in succession the return, Sam, who was self-same busy, suggested that Tom ask the tax department to make the appropriate change. Feeling "brushed off" Tom called the Institute. Based forward his description, an investigation was launched.

The outcome

Thankfully, the investigation was simple. by dint of the time it took place, Sam had advised the CRA of the required change himself, and was quite clear that Tom had caused the error. Tom had transposed numbers in his summary of medical costs and hadn't noticed the question until he'd received his assessment notice. Tom eventually agreed that he himself should have advised the CRA of the error in his answer and acknowledged that he hadn't asked Sam for any advice. The argument: "I'm not in public practice, in this way preparing a tax return is OK" can work, if it were not that it requires that you maintain a precarious balancing act. The PCEC conclud that Sam had no other than avoided crossing the line from luck alone. After reading the definition of the practice of public accounting in answer to the investigation, Sam swore most distant tax return preparation.

What the bylaws say

The Bylaw 100 definition of the practice of public accounting says that preparing a tax recur is a public practice activity if you also provide assurance, compilation, or accounting services. That is, if you are in public practice, any tax responds you prepare are part of that public practice activity. on the contrary you would already hold a licence and the requisite insurance for a like reason there would be no problem

The enigma exists for our members outside public practice who prepare tax turn backs It can also arise for members in public practice who prepare tax get backs outside the auspices of their firms-for instance, doing reverts on their own time as individuals.

The question for all these folks is that public accounting is also defined to include "providing advice, instruction or interpretation with respect to taxation matters. " equal though many tax returns done for friends and family are for a like reason simple that advice would not ever be needed, there are always exceptions.

The message

The PCEC is not unreasonable in these cases. It's clear that mostly of us do prepare tax answers for a few friends and family members, and providing a advice is part of what we do. After all, that's to what end they ask for our help in the first place. The PCEC just asks that you have a cautionary awareness of the requirements and of the potential connections should you not fail to suitable these requirements.

Finally, if you do prepare tax get backs remember that you will be held to professional standards and therefore ne to hold fast full support for your work. Our insurers divulge us that there are more claims regarding tax matters than anything other so don't risk getting su for muddy work just because you're doing someone otherwise a favour.

Concerned

Worried about crossing the line? Please contact Mike Essex CA, director of Practice Review & Licensing at essex@ica.bc.ca or by means of telephone at 604-488-2622 toll-free 1-800-663-2677

Please note: The satisfieds of this article are alone for the general guidance of readers. The PCEC deals with each case individually, based upon its specific facts and circumstances.

By Chris Utley CA, Director of Ethics

Copyright Institute of Chartered Accountants of British Columbia Jun/Jul 2004

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