Return to the facts of problem 67. Assume that you are the CPA in charge of preparing the tax return for each of the taxpayers in the problem. Based on the Statements on Standards for Tax Services (Appendix D), explain what you should do in each case. Your discussion should indicate which, if any, of the eight statements is applicable and your obligations with regard to each applicable statement. If the facts are not sufficient to determine whether a statement applies to a situation, discuss the circumstances in which the statement would apply.

(From Problem 67)

a. Tom knows that farm rent received in cash or farm produce is income subject to tax. To avoid showing a cash receipt on his records, he rented 50 acres for 5 steers to be raised by the tenant. He used 2 of the steers for food for his family and gave 3 to relatives. Because he did not sell the livestock, he did not report taxable income.

b. Betty applied for and received a Social Security number for Kate, her pet cat. Surprised by how easy it was to get a Social Security number, she decided to claim a dependent exemption on her tax return for Kate. Other than being a cat, Kate met all the tests for a dependent.

c. Glen has put money in savings accounts in 50 banks. He knows a bank is not required to report to the IRS interest it pays him that totals less than $10. Because the banks do not report the payments to the IRS, Glen does not show the interest he receives as taxable income. Although Glen’s accountant has told him all interest he receives is taxable, Glen insists that the IRS will never know the difference.