One of your most important clients has strongly suggested that you change the treatment of an...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
One of your most important clients has strongly suggested that you change the treatment of an item on his income tax return. You believe that the treatment of the item suggested by the client will materially understate the client's correct tax liability. Further, there is no reasonable basis for the change. You have basi- cally two choices: (1) You could refuse to change the item. (2) You could agree to change the item as suggested by the client. Would you agree to change the item? According to the standards, it would be unethical to capitulate to the client's request to materially understate the client's correct tax liability, since in signing a return you are attesting that the return is true, correct, and complete. To sign it would be to engage in lying and that is a clear cut ethical violation. But there is an area of tax accounting that is not so clear cut and is problem- atic. It is the area where there is exploitation of the tax system. Standard one states that: "A tax accountant should not recommend a position that 'exploits' the IRS audit selection process." But what exactly counts as exploiting? What is the ethics of engaging in tax dodge schemes, and are there other areas where the accountant can help the client exploit the tax system and avoid paying his or her fair share of the tax burden? Consider the following scenarios: 1. You assured your client that a particular expenditure was deductible only to find out later that it was not. However, it is unlikely the item will be de- tected by the IRS. Do you tell your client about your mistake and change the form, or do you let it stand as it is? 2. You discover that the client's previous year's return, which someone else prepared, listed a deduction $3000 in excess of the actual expenditure. The mistake was not intentional and the IRS will probably not detect the error. Should you correct the error, costing your client additional liability? What if you prepared the return the previous year so that the mistake was yours? 3. You are preparing a tax return for a very wealthy client, who can provide you with excellent referrals. You have reason to think the client is present- ing information that will reduce his tax liability inappropriately. Should you inquire about the veracity of this information or just prepare the tax form with the information as given?10 One of your most important clients has strongly suggested that you change the treatment of an item on his income tax return. You believe that the treatment of the item suggested by the client will materially understate the client's correct tax liability. Further, there is no reasonable basis for the change. You have basi- cally two choices: (1) You could refuse to change the item. (2) You could agree to change the item as suggested by the client. Would you agree to change the item? According to the standards, it would be unethical to capitulate to the client's request to materially understate the client's correct tax liability, since in signing a return you are attesting that the return is true, correct, and complete. To sign it would be to engage in lying and that is a clear cut ethical violation. But there is an area of tax accounting that is not so clear cut and is problem- atic. It is the area where there is exploitation of the tax system. Standard one states that: "A tax accountant should not recommend a position that 'exploits' the IRS audit selection process." But what exactly counts as exploiting? What is the ethics of engaging in tax dodge schemes, and are there other areas where the accountant can help the client exploit the tax system and avoid paying his or her fair share of the tax burden? Consider the following scenarios: 1. You assured your client that a particular expenditure was deductible only to find out later that it was not. However, it is unlikely the item will be de- tected by the IRS. Do you tell your client about your mistake and change the form, or do you let it stand as it is? 2. You discover that the client's previous year's return, which someone else prepared, listed a deduction $3000 in excess of the actual expenditure. The mistake was not intentional and the IRS will probably not detect the error. Should you correct the error, costing your client additional liability? What if you prepared the return the previous year so that the mistake was yours? 3. You are preparing a tax return for a very wealthy client, who can provide you with excellent referrals. You have reason to think the client is present- ing information that will reduce his tax liability inappropriately. Should you inquire about the veracity of this information or just prepare the tax form with the information as given?10
Expert Answer:
Answer rating: 100% (QA)
As per the rules and guidelines a successor of a business entity a corporation partnership or sole proprietorship and a predecessor of a business entity a corporation partnership or sole proprietorshi... View the full answer
Related Book For
South Western Federal Taxation 2015
ISBN: 9781305310810
38th edition
Authors: William H. Hoffman, William A. Raabe, David M. Maloney, James C. Young
Posted Date:
Students also viewed these accounting questions
-
Jordan files his income tax return on a calendar-year basis. He is the principal partner of a partnership reporting on a June 30 fiscal year-end basis. Jordan's share of the partnership's ordinary...
-
Biologists stocked a lake with 500 fish and estimated the carrying capacity (the maximal population for the fish of that species in that lake) to be 7000. The number of fish tripled in the first...
-
Presh Naidoo is busy completing his income tax return for the current year of assessment. He is a sole proprietor who programmes and repairs computers for a living. 1. On 5 March 2020, Presh received...
-
Has Mississippi enacted the Uniform Real Property Electronic Recording Act? Provide the URL/web address of your source. Provide the citation to where this law is found in the Miss. Code (including...
-
With export credit insurance the exporter can eliminate all risks of nonpayment by foreign buyers. Discuss.
-
A laboratory reports the following vapor-pressure (Psat) data for a particular organic chemical: Correlate the data by fitting them to the Antoine equation: That is, find numerical values of...
-
The vertical and horizontal forces (reactions) at joints \(A\) and \(B\) of a typical cable of the suspension bridge shown in Fig. 8.27 are given by \(F_{x}=2.8 \times 10^{6} \mathrm{~N}\) and...
-
a. What are the arrival rate of 911 calls and the service rates for each precinct? b. Does the arrival rate of calls for each precinct appear to follow a Poisson distribution? c. Does the service...
-
You are designing a virtual networking solution for an Azure subscription. You intend to deploy virtual machines across three availability zones in the East US and West US Azure regions. You need to...
-
1. After examining financial data for a monthly period, the owner of a small business expressed surprise that the firms cash balance had decreased during the month even though there was substantial...
-
Victor French made deposits of $5,000 at the end of each quarter to Book Bank, which pays 8% interest compounded quarterly. After 3 years, Victor made no more deposits. What will be the balance in...
-
As in Quiz10, assume we have this database: CREATE TABLE 'country' ( 'Code' CHAR (3) NOT NULL DEFAULT" 'Name' CHAR (52) NOT NULL DEFAULT", CECS 535: Introduction to Database Fall 2023, Homework 5...
-
Consider the relations R(A, B), S(B,C), and T(C, D). Assume that R, S, and T are stored in B(R), B(S), and B(T) blocks, respectively. Furthermore, assume that you have a buffer of (approximate) size...
-
A student used the following trigonometric substitution. Let x = sec 8, dx = sec 0 tan de The student simplified the integral and gets: tan (0) + tan (0) + c Help the student with the right triangle...
-
Firms A, B, and C were all selling 1,000 cups of coffee per day at $3.50 per cup, and they wanted to experiment with pricing. The table below shows the change in sales as a result of their new...
-
Using "market prices are generally right", meaning, in an efficient market, Explain Apple inc's position into the market prices of all traded assets such as stocks and bonds fully reflect all...
-
GHI Inc.'s most recent annual net income before taxes is $64,000; its operating expenses are $12,000; its interest expenses are $7,000; its tax rate is 25%; it pays a dividend of $5,000; its...
-
Inexhaustible collections of ONPOs are not required to be capitalized or depreciated, if certain criteria are met. Why is this so, and what accounting and reporting recognition, if any, is required...
-
Leigh sued an overzealous bill collector and received the following settlement: Damage to her automobile that the collector attempted to repossess ..... $ 3,300 Physical damage to her arm caused by...
-
Wellness, Inc., a 501(c)(3) organization, makes lobbying expenditures of $340,000 this year. Exempt purpose expenditures were $600,000 for the first six months of the year and $950,000 for the last...
-
Complete the following table by classifying each of the independent expenditures (assume that no reimbursement takes place). Deductible Deductible Not Expense ltem Moving expense of an employee for...
-
For a long time, you have been wondering how to convert your passion for rock climbing into a business opportunity. During a recent climbing trip you met Chris, a climbing-gear designer. He agreed to...
-
Continuing the worked exercise above, make the necessary adjustments for the following transactions: (a) On day 3, Mobius Inc invests $500 of cash by acquiring a new computer. (b) On day 4, Mobius...
-
(a) The income statement shows: (b) The statement of financial position shows: Income-Expenditure=Profit Can you provide examples for each of these categories? Examples of income Examples of...
Study smarter with the SolutionInn App