Determine why Mr. Holcomb’s actions violate the AICPA Code of Professional Conduct, Treasury Department Circular No. 230, and the Internal Revenue Code.

HoustonHolcomb CPAs (the “firm") has prepared the personal and business tax returns for Jonas and Sandra Jackson for the past ten years. Both Mr. and Mrs. Jackson are highly successful businesspeople and live in a common law property state. Mr. Jackson is the sole shareholder of an excavation company and three apartment complexes, all of which are organized and taxed as S-corporations. Because of his success and close ties to the local business community, he serves on the board of directors of the regional bank, the local hospital, and is the chairperson of two local charities. Mrs. Jackson is the sole owner of two businesses—a florist and a wedding planning company—both of which are organized as single-member limited liability companies (LLC) and taxed as sole proprietorships.

Both Mr. and Mrs. Jackson’s portfolio of business is assigned to one of the firm’s founding partners, Robert Holcomb, because he and Mr. Jackson were fraternity brothers in college. Moreover, due to his success and relationships with other business leaders, Mr. Jackson was able to persuade the bank, hospital, and various local charities he serves to move their business to the firm. As a result of his relationship with Mr. Jackson, Mr. Holcomb’s portfolio of business has increased 15% over the past three years.
On March 31, Mr. Holcomb received a call from Mr. Jackson informing him that Mrs. Jackson had filed for divorce. Later that same day, Mrs. Jackson called and explained to Mr. Holcomb that the couple had decided to file separate personal tax returns for the prior tax year and would agree to allow the firm to prepare the returns because they were already substantially complete. However, she also told Mr. Holcomb she would be moving her business, 2% of Mr. Holcomb’s portfolio of business, to another accounting firm in the near future.
After the tax returns were filed, Mr. Holcomb received a call from Mr. Jackson expressing his outrage that Mrs. Jackson was understating the previous year’s income and value of real estate owned by her wedding planning business during the divorce proceedings. Since Mr. Jackson does not have access to the business’ records, he asked Mr. Holcomb for copies of business records obtained in conjunction with the preparation of the prior tax year’s tax return (i.e., the year separate personal tax returns were filed) to determine whether the information reported by Mrs. Jackson was accurate. Mr. Jackson assured Mr. Holcomb that the information would only be used to determine whether he should go through the expensive process of challenging the financial figures reported by Mrs. Jackson—none of the information would be disclosed to anyone else.
You are a newly licensed CPA in the firm and work closely with Mr. Holcomb on the Jackson’s account. Since your cubical is outside Mr. Holcomb’s office, you overhear many of his phone calls. While Mr. Holcomb was preparing to leave for a two-week business trip abroad, you hear him discussing Mr. Jackson’s request with someone on the phone. You specifically overhear Mr. Holcomb say he is concerned about losing all of Mr. Jackson’s business and the business of the other organizations he represents, which comprised 17% of Mr. Holcomb’s business portfolio last year. After finishing the call, Mr. Holcomb passes by your cubicle and tells you he will see you when he returns from his trip, and that he will be available via email while he is gone.
The next day, you receive an email from Mr. Holcomb instructing you to email the prior year’s trial balance and fixed asset records for Mrs. Jackson’s wedding planning business to Mr. Jackson. You review the files and find no correspondence from Mrs. Jackson concerning the disclosure and release of the financial information.

Answer rating: 100% (QA)

Mr Holcombs actions violate the AICPA Code of Professional Conduct Treasury Department Circular No 2... View the full answer