Comfort letters make your CPA uncomfortable

Your Guide to State, Local, Federal, Estate + International Taxation

Have you applied for a loan recently? Or tried to refinance an existing loan? Increasingly, it appears lenders and mortgage brokers are requesting information from you as the borrower, to request of us, your CPA. We call these comfort letters, though in actuality the proper term is verification letters.

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They request anything from verifying that a tax return has been filed to opining on whether the business will be affected if a certain amount of cash is taken out. Since CPAs have no more access to accurate crystal balls than the rest of the financial world, not only is that last item nearly impossible to answer, but it is so ridiculous in nature that it should not even have been asked.

The reason we are refusing to provide these letters is not because we are mean spirited or unwilling. It is that CPAs are prohibited from providing any assurance on matters relating to solvency. It is actually a violation of the AICPA attestation standards, which makes it an ethical violation. And no matter how many times we are told that “Other CPAs do this all of the time”, we find that to be somewhat unbelievable. In fact, it is like when your children ask to do something and you tell them no, and they whine at you – “But all of the other kids get to do it.” As a parent, I discovered that was also fairly unbelievable.

Sometimes the third party wants a copy of the tax return. Can we provide that? Sure, we can. After you sign a disclosure giving us permission. This disclosure has certain wording, and we need to follow it directly from the Internal Revenue Code (Code Section 7216). Yes, we understand it easier for you, the client, to contact us directly for a copy of your tax return – we always know where we have it filed and it is electronic. However, when we ask for the signature on the disclosure form, please do not belittle us – we are following our standards.

A CPA license is not easy to earn – there are testing and continuing education requirements that are ongoing, so we take our standards quite seriously. We can try to help as much as possible, but we cannot predict the future.

If you have any questions about comfort letters, contact your Henry+Horne advisor today.

Donna H. Laubscher, CPA