Sarah is a certified public accountant in State Y, a small northeastern state. She is also a member of the AICPA. Practicing in a small town, Sarah has always been generous with her time. She rarely uses formal engagement letters with her clients, preferring instead to shake hands. One of her clients is a small private corporation reporting its income on the accrual basis and on a calendar year. The corporation is in the lumber business. Over the years, Sarah has been involved in devising various tax planning strategies for the benefit of the taxpayer in order to maximize its deductions and minimize its taxable income to the extent possible. Sarah has always assured her clients that she would let them know whenever new rules were enacted that would affect the tax planning strategies.
In November, new rules were enacted which permitted taxpayers owning certain family lumber and timber enterprises to file an election in order to amortize certain costs that are otherwise required to be capitalized. The rules were expressly stated to apply retroactive to January 1 for those taxpayers seeking to utilize its benefits for an entire tax year. In order that taxpayers avail themselves of this initial first year benefit, they were required to make a special election with IRS within 30 days of the statute's enactment, or on or before December 31. Unfortunately, in December Sarah was on vacation and was not aware of the special tax benefit available to her client. On returning to the office in January, she received an angry call from her client's sole owner who was attending a trade show and had learned about the special tax benefit. The owner demanded to know why Sarah did not inform him that the laws had changed, particularly given Sarah's assurance that she would always "stay on top of things affecting the client's tax affairs." In response, Sarah replied icily that "It wasn't her job to stop living and just read tax books every second of the day." "In fact," she said, "I have no duty to keep you apprised of tax changes." With that statement, she indignantly slammed down the phone.
Aside from her unprofessional behavior, comment on whether Sarah's assertion that she had no duty to keep the client informed on tax changes is correct under SSTS No. 8.