Suppose that you propose a generic tax planning idea for your corporate client that you believe will
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Year 1: $5,000 tax credit
Year 2: $7,000 tax deduction
Year 3: $12,000 tax deduction
However, there is only a 70% chance that the IRS will detect and accept the results of the tax plan. If the IRS does not accept the plan, the tax savings each year will be zero (i.e., no credit and no deductions). Your client is risk-neutral, which means that it is not "afraid" of risk but also does not seek out risk. Compute the maximum fee a rational client would pay you to design and implement this tax plan. You can ignore time-value of money considerations for this relatively short time horizon.
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Auditing A Practical Approach
ISBN: 9780730382645
4th Edition
Authors: Robyn Moroney, Fiona Campbell, Jane Hamilton
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