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Mell Corp. engaged Davis & Co., CPAs, to prepare its tax returns and provide advice about minimizing taxable income in high-tax states. Mell's management informed
Mell Corp. engaged Davis & Co., CPAs, to prepare its tax returns and provide advice about minimizing taxable income in high-tax states. Mell's management informed Davis it suspected that the taxable income from certain states was materially understated and financial statement net income was materially overstated. Nonetheless, Davis expressed an unmodified opinion on the statements and did not amend the tax returns. Mell relied on the documents to obtain a loan from National Bank to expand its operations. National relied on the documents in making the loan to Mell. As a result, Mell has defaulted on the loan and has incurred a substantial loss. If National sues Davis for fraud, must Davis furnish National with the audit working papers? Yes, if the working papers are lawfully subpoenaed into court. No, because County was not in privity of contract with Davis. Yes, provided that Mell does not object. No, because of the privileged communication rule, which is recognized in a majority of jurisdictions
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