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them in some cases for their clients. Petitioner and Mr. Ludlow
hired Mr. Reiter to do monthly accounting for the law firm and to
prepare their personal tax returns.
Although Mr. Reiter never prepared a formal engagement
letter for his work for the law firm, the limited scope of his
accounting responsibilities for the law firm was spelled out in
the cover letters he sent to the law firm each month. Mr. Reiter
performed “compilation” accounting for the law firm. In other
words, he relied on the law firm’s representations regarding its
income and expenses and did not perform an independent
verification of the information provided to him.
Mr. Reiter set up an accounting system for the law firm to
report its income and expenses. Mr. Reiter’s accounting system
for the law firm was as follows: The law firm would have two
business bank accounts--a general operating account and a client
trust account. During the years in issue, the law firm
maintained a general operating account at Bank of America
(general operating account). During the years in issue, the law
firm maintained a client trust account at Security Pacific
National Bank (client trust account). The bank records for the
general operating account and the client trust account were
mailed to the law firm’s address.
Proceeds of settlements and lawsuits, and funds belonging to
clients, were deposited into the client trust account. Funds
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