AICPA Code of Professional Conduct: The former accountant's alleged actions could potentially violate certain rules of conduct in the AICPA (American Institute of Certified Public Accountants) Code of Professional Conduct. Specifically, the following rules may be relevant:
Rule 102: Integrity and Objectivity - This rule requires accountants to be honest and free from conflicts of interest, and to exercise objective professional judgment. If the former accountant provided incorrect advice intentionally or with a lack of objectivity, they may have violated this rule.
Rule 201: General Standards - This rule establishes the general standards for the practice of accounting, including competence, due professional care, and professional skepticism. If the former accountant failed to exercise due professional care or lacked competence in advising the client regarding the deduction of the loss on the property, they may have violated this rule.
Rule 501: Acts Discreditable - This rule prohibits accountants from engaging in conduct that is dishonest, fraudulent, or in violation of applicable laws or regulations. If the former accountant intentionally provided incorrect advice or engaged in fraudulent conduct, they may have violated this rule.
Legal Standard of Negligence and Recklessness: Negligence is a legal standard that requires individuals to exercise reasonable care in their actions. Negligence occurs when a person fails to meet the standard of care, causing harm to another person. Recklessness, on the other hand, involves a conscious disregard for the risks and consequences of one's actions.
Based on the information provided, if the former accountant made errors in advising the client and failed to exercise reasonable care, they may have acted negligently. However, without additional information, it is difficult to determine if the former accountant's actions would meet the legal standard of recklessness.
Legal Standard of Negligence and Gross Negligence: Gross negligence is a higher degree of negligence that involves extreme carelessness or willful disregard for the consequences of one's actions. It goes beyond ordinary negligence.
Based on the information provided, it is unclear if the former accountant's actions would meet the legal standard of gross negligence. Gross negligence would typically involve actions that are significantly more egregious or reckless than ordinary negligence.
Defenses to Legal Liability: The former accountant may assert certain defenses to avoid legal liability, depending on the specific circumstances and applicable laws. Some potential defenses may include:
Contributory Negligence: If Steve Michaels also played a role in the errors or failed to exercise reasonable care in reviewing the tax returns prepared by the former accountant, the former accountant may argue that Michaels' own actions contributed to the losses.
Statute of Limitations: There are time limits within which a legal action must be initiated. If the time limit for filing a claim has expired, the former accountant may argue that the claim is barred by the statute of limitations.
Lack of Proximate Cause: The former accountant may argue that their errors or actions were not the direct cause of Steve Michaels' losses and that other factors were responsible.
It is important to note that the applicability and success of these defenses would depend on the specific facts and circumstances of the case, as well as the relevant laws and regulations in the jurisdiction involved.