John owns all the shares of Blue Corporation. John wishes to sell the corporation and agrees to
Question:
John owns all the shares of Blue Corporation. John wishes to sell the corporation and agrees to pay an outside agency $80,000 to determine the fair value of the corporation and to assist him in finding a buyer.
John pays the fee from his personal checking account. John then instructs the corporation’s bookkeeper to reimburse him with a corporation check for the $80,000 fee but to charge it to the corporation as an “advertising expense.” Blue Corporation’s total revenue is $500,000 for this year and the prior year. Blue Corporation’s profit before tax is $100,000 this year (after deduction of the “advertising expense”) and $180,000 for the prior year. In no prior year did Blue Corporation have any advertising expenses.
John’s external CPA is Heather who is also an attorney. Heather prepares both the corporation’s return and John’s personal tax return. Heather was aware of the potential sale of the business but was not specifically advised by the corporation or by John about the $80,000 fee or the reimbursement to John. She reviews the corporation’s books and deducts the $80,000 advertising expense when preparing the corporation’s return. The $80,000 reimbursement from the corporation is not reported on John’s personal tax return. The returns are all-time prepared and filed.
Is Heather subject to Circular 230? (Yes or No) and Explain why Heather is or is not subject to Circular 230.
Might Heather need to abide by any ethical guidelines in addition to those found in Circular 230? If so, identify an organization that might issue such guidelines, or one place Heather might find such guidelines.
In your opinion has Heather exercised due diligence in the preparation of the individual and corporate tax returns in this case? Give a reason for your conclusion.
Federal Taxation 2016 Comprehensive
ISBN: 9780134104379
29th edition
Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson