Makena Hale owed First Bank of Idaho approximately $250,000 for loans she had taken out to start up a business that had failed. Because she did not have the cash, she negotiated with the bank to transfer property she owned worth approximately $200,000 to the bank to reduce the debt. Before signing any paperwork, Makena hired Smith, Smith, and Jones, an accounting firm, to review the transaction. She was concerned that transferring the property would create a tax liability for her when she would not be getting any cash out of the transfer to cover such a tax liability. Creedence Smith, a partner in the firm, reviewed the details of the potential contract and advised Hale that the transaction would not create a significant tax liability for anyone. Smith did not do a thorough analysis of Hale's financial situation to assess how the contract would relate to her other financial activities. Based on this information and advice, Hale signed the paperwork and transferred the property. Early the next year, Hale received an IRS Form 1099 from the bank reporting the transfer of the property as a sale that had to be reported on Hale's tax return for the year. Because of other items in her financial status, this did create a significant tax liability for Hale. She sued the firm for breach of contract and negligence. Does she win?

1. In this situation,Select

Makena Hale

Creedence Smith

Item 1

is the client andSelect

Makena Hale

Creedence Smith

Item 2

is the accountant.

2. The accountant was hiredSelect

to certify Hale's financial statements

to conduct an analysis of a particular deal

to verify the payment of taxes

Item 1

3. ThereSelect

is

is no

Item 1

evidence that the accountant did not complete the analysis in a timely manner.

4. ThereSelect

is

is no

Item 1

evidence that the accountant did not provide the client with a complete report as required in the contract.

5. The accountant likelySelect

is

is not

Item 1

liable to the client for breach of contract.

6. Smith had a duty ofSelect

care

perfection

tax awareness

Item 1

to Hale.

7. This duty required Smith to act asSelect

an ordinarily prudent accountant

a reasonable client

a fair judge

Item 1

would act.

8. A reasonable accountantSelect

would be

would not be

Item 1

familiar with tax rules and regulations when asked to perform an analysis on a deal to determine if it would result in tax liability.

9. A reasonable accountantSelect

would

would not

Item 1

explore a client's entire financial situation when asked to assess whether a transaction would result in a tax liability.

10. SmithSelect

did

did not

Item 1

include an analysis of this transaction and Hale's specific financial situation.

11. Smith likelySelect

did

did not

Item 1

breach his duty.

12. This actionSelect

did

did not

Item 1

cause harm to Hale in the form of a tax liability.

13. Smith's actionSelect

did

did not

Item 1

cost Hale money.

14. Smith likelySelect

did

did not

Item 1

commit negligence.