Assignment Problem Two - 7 (Tax Preparers Penalties) For each of the following independent cases, indicate whether you believe any penalty would be assessed under ITA 163.2 on any of the parties involved. Explain your conclusion.

Case 2 A very successful accountant lives next door to what appears to be a wealthy neighbour. Based on similar properties, his house appears to be worth more than $2 million and he has three cars, including a Ferrari and a Mercedes-Benz. In the last two years, the two neighbours have become friends. As his accountant has retired, the neighbour asks the accountant to prepare his tax return. To this end, the neighbour provides a T5 that shows income of $90,000. As this appears to be on the low side, the accountant asks if he has any other source of income. The neighbour indicates that he does not, but also noting that, a few years ago, he won $20 million in the provincial lottery. The accountant does not ask any further questions and prepares and files the return. When the friend is audited it is discovered that he has over $500,000 in unreported income. Case 3 In preparing a tax return for one of his clients, an accountant uses the financial statements of another accountant to determine the clients business income inclusion. The accountant does not see anything in these statements that seems unreasonable. When his clients return is audited, the CRA finds that the business income financial statements prepared by the other accountant contained material misrepresentations.