In August 2005, Paula Preparer was retained as accountant and tax return preparer for a new...
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In August 2005, Paula Preparer was retained as accountant and tax return preparer for a new corporate client. In reviewing the prior returns of the client, Paula noticed that substantial deductions for travel and entertainment expenses had been claimed. She asked the client if the corporation had ever been audited and was told that it had not. Paula knew that the president of the corporation spent a great deal of time traveling and promoting the business, and so in setting up their proce- dures for the new client, she stressed the importance of keeping ade- quate records for any travel and entertainment expenses. Paula also discussed the sort of recordkeeping procedures that should be followed by the bookkeeper of the corporation. The first fiscal year of the corporation for which Paula prepared its return was the fiscal year ending August 2005. In reviewing the records that were submitted to her, Paula noticed that expenses of $9,500 were claimed for travel and entertainment by the president. Because the sales of the corporation were approximately $750,000 for that year, Paula did not think that the $9,500 figure was out of line. Since Paula had spent so much time stressing the Code Sec. 274 recordkeeping requirements when she was initially retained, she assumed that the taxpayer had followed through on her insistence that adequate records be kept. Paula did not inquire into the adequacy of the T&E records before she pre- pared the return. In 2006, the corporation's return is audited. The agent discovered that included in the $9,500 was approximately $2,000 that constituted per- sonal expenditures of the president and approximately $5,500 for which adequate substantiation did not exist. The IRS has disallowed $7,500 of the deduction to the corporation and is also proposing to assess the penalty under Code Sec. 6694(a) against Paula. Is the proposed penalty assessment justified? In August 2005, Paula Preparer was retained as accountant and tax return preparer for a new corporate client. In reviewing the prior returns of the client, Paula noticed that substantial deductions for travel and entertainment expenses had been claimed. She asked the client if the corporation had ever been audited and was told that it had not. Paula knew that the president of the corporation spent a great deal of time traveling and promoting the business, and so in setting up their proce- dures for the new client, she stressed the importance of keeping ade- quate records for any travel and entertainment expenses. Paula also discussed the sort of recordkeeping procedures that should be followed by the bookkeeper of the corporation. The first fiscal year of the corporation for which Paula prepared its return was the fiscal year ending August 2005. In reviewing the records that were submitted to her, Paula noticed that expenses of $9,500 were claimed for travel and entertainment by the president. Because the sales of the corporation were approximately $750,000 for that year, Paula did not think that the $9,500 figure was out of line. Since Paula had spent so much time stressing the Code Sec. 274 recordkeeping requirements when she was initially retained, she assumed that the taxpayer had followed through on her insistence that adequate records be kept. Paula did not inquire into the adequacy of the T&E records before she pre- pared the return. In 2006, the corporation's return is audited. The agent discovered that included in the $9,500 was approximately $2,000 that constituted per- sonal expenditures of the president and approximately $5,500 for which adequate substantiation did not exist. The IRS has disallowed $7,500 of the deduction to the corporation and is also proposing to assess the penalty under Code Sec. 6694(a) against Paula. Is the proposed penalty assessment justified?
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Answer 1 Sentencing assessment against Paula under Article 2 of the La... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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