Negligent Tax Advice
An accounting firm was hired to perform bookkeeping services for a small hotel client. The firm's engagement letter stated that the services to be performed were limited to bookkeeping. The firm continued to service the client in this capacity for the next 10 years, but never sent an engagement letter after the first year. As a result of a tax audit, the client was required to pay over $500,000 in interest and penalties. The client alleged that the firm provided faulty tax advice. The firm contended that it never was engaged to provide tax advice as evidenced by its 10 years engagement letter. The client alleged that the nature of the services evolved over the 10 years and tax advice was offered. The firm settled the case by paying $350,000 to the client. Given the absence of an updated engagement letter, the client's "evolving services" argument was compelling.

Conflict of Interest
An accounting firm performed audit services for ABC Corporation and tax services for John Q. Different partners serviced these clients. John Q. purchased ABC Corporation for $8.5 million. It turned out that ABC Corporation was a bad investment. John Q. alleged (1) that his neighbor, the tax partner at the accounting firm, provided him with "strategic advice" regarding the acquisition in a conversation over the fence; and (2) that the partner did not reveal negative information about ABC Corporation because the firm had a conflict of interest. The firm denied representing John Q. in this transaction. In the end, the firm paid John Q. $2.5 million.