Sometimes I don’t have to look very hard to find something important to our readers. Literally upon logging into my email this morning was a discussion on LinkedIn about a new small business lending program being marketed through accountants. Is that a wonderful new tool for CPAs to help clients with cash flow problems or a ticket to court on charges of accounting malpractice?
Here are the facts – you decide!
According to AccountingToday, a company called Biz2Credit is offering online loans to small businesses. They recently announced a partnership program with accountants and tax preparers that allows these folks to refer their clients to the company. According to published materials, the CPA earns a commission of 20 to 30% of the transaction fees. Accountants can also “white label” the program and offer these loans directly to their clients through the accountant’s own web site.
“Everybody wins” according to the press release announcing the program.
Time out! We have no problems with small business lenders. They play a vital role in our economy, especially since many traditional banks no longer target that sector. CPAs, however, need to be very careful as to how they market these programs.
Unlike tax preparers who are largely unregulated, CPAs have high ethical standards and are regulated by the states. Accepting a commission without full disclosure can land an accountant in hot water and open the door for a lawsuit for accounting malpractice if something goes wrong.
CPAs have a duty to be disinterested third parties when it comes to business transactions involving their clients. It makes it difficult for an accountant to be truly disinterested if he or she stands to earn a fat commission check.
It’s not just commissions from business loans that get accountants in trouble. We have seen accounting professionals successfully sued for taking commissions or payments on other transactions as well. A few years ago it was popular for some accountants to market so-called welfare benefit plans (419 plans). Fast forward to today and the IRS now calls many of these plans abusive tax shelters. It’s hard to argue that the accountant was a dispassionate third party that was protecting the client’s best interests once the client discovers that the accountant pocketed a $20,000 commission check.
We are not saying that accountants can never act as loan brokers or receive commissions for investments. Nor are we saying there is anything wrong with the services provided by biz2credit. We do believe that when the two join forces it becomes an area fraught with peril for the accountants. Absent FULL DISCLOSURE to clients and a check with state regulators first, CPAs are treading on thin ice and could become easily defendants in an accounting malpractice suit.
Post by Brian Mahany, Esq.
Mahany & Ertl is a national boutique law firm that concentrates in tax and fraud cases. As such, we both defend accountants and sue accountants for accounting malpractice claims. If you believe that your accountant did not adequately disclose his or her financial stake in a transaction or if you believe you received bad professional advice, you may have a claim for accounting malpractice.
For more information, contact attorney Brian Mahany at or by telephone at (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence. Have questions? Call us without obligation or use the search engine feature of our Due Diligence blog. We have hundreds of helpful articles.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California.