Will and Joan received a letter from the Internal Revenue Service in late 20x7 informing them that

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Question:

Will and Joan received a letter from the Internal Revenue Service in late 20x7 informing them that their joint federal income tax returns for the years 20x5 and 20x6 had been selected for an “office audit.” Both returns included itemized deductions. The letter asked them to come to the office of the IRS at 10:00 A. M. on January 15, 20x8 to meet with B. Chops, Tax Auditor, and bring documentation in regard to the following items that were included in the returns:

Charitable Contributions for 20x5 and 20x6

Casualty loss deduction for 20x5, including insurance recoveries in connection with the loss

Deduction for alimony paid by Will to a former spouse for 20x5 and 20x6

Income reported on the 20x6 return for which no Form W-2 or Form 1099 was received by Will or Joan.

Will and Joan ask you to represent them in the examination. You have not provided tax services to them in the past. In fact, you never met them. You have scheduled a conference in your office next week. Will and Joan would like P. Pusher, the tax return preparer to attend the meeting as well.

What information is important for Will and Joan to know about your credentials? Would it make a difference if you were a CPA or an unlicensed bookkeeper?

What advice would you give them in advance of the conference?

What will be your response to Will and Joan’s request to have Pusher attend the conference with them? Why?

What can you learn from the letter from the IRS?

During the meeting, Will and Joan told you that Will plays in some high stakes poker games a few nights a week and has done quite well. In fact his net winnings were $35,000 in 20x5 and $55,000 in 20x6, all cash. Those winnings were not reported on their returns, however, because they thought cash was not taxable. What advice would you give them?

What document will you need to represent Will and Joan before the IRS?