Write a response to these two posts. Only has to be about 150 words each:
Post1:
A) As the CPA preparing the tax return in Situation A, I would have to rely on the information received by Tom. Unless I have prepared tax returns in the past or have previous financial information, I would not know that Tom is engaging in tax evasion. This being the case, Statement 3 applies to the situation, by stating that I should use previous year's tax returns whenever possible. If Tom does not produce the previous year's returns, then I would continue with the tax return in good faith that the information provided is correct.
B) As the CPA in the situation B, I would look at previous year's tax returns to see if Betty had claimed a dependent before. If not, I would look to see if she has adopted a child or recently given birth. If she is only claiming the one dependent, then she could just be claiming herself, which is allowed on the tax return. Statement applies to this situation because like the first situation, unless I have previous knowledge of Betty's tax returns, I would have to assume the information given by Betty is correct and that she does have a dependent.
C) In situation C, Glenn is engaging in tax evasion. As the CPA, I would know that this return would be subject to penalties and would not sign the tax return. Statements 1 and 7 apply to this situation. 1 applies for that I could not recommend this tax return to be completes as is. Statement 7 allows me to give the advice necessary to complete this tax return correctly, but does not obligate me to do so. If Glenn wanted to complete the tax return as is, it would be his choice.
D) Bob is not evading the taxes but he is putting them off to avoid paying higher taxes in the current year, this is not illegal, yet he is trying to structure his income to pay the lowest amount of taxes possible. Statement 1 applies to this situation, for that I could proceed with the Tax return, structuring the sale in 2013 knowing that if this were challenged it is most likely to be sustained. Bob is not paying less taxes than he normally would have or skipping out on paying any taxes.
E) Asha is legally avoiding taxes in year 2013. Although the equipment was purchased for use in 2014, she can use the special election to decrease her taxes in 2013. As CPA I would prepare the tax return as is and sign off in confidence that this return could pass audit which applies statement 1. Statement 7 applies for that the advice given to Asha reflects professional competence.
Sources:
https://www.gcumedia.com/digital-resources/cengage/2014/concepts-in-federal-taxation_ebook_21e.php
https://www.aicpa.org/Research/Standards/Tax/Pages/default.aspx.
Post 2:
Understanding the differences between tax avoidance and tax evasion is very important for an aspiring CPA. Each example in the problem focused on a how different actions can be perceived by tax professionals.
A) If I was newly assigned to this account it is likely that I would know the true nature of what tom has done. And without any verifying documentation I would have to take the tax payers word (within reason). This problem would be applied to SSTS 3.
B) This problem to me appears to be tax evasion. This is because she obtained a SSN for a pet and is calming a pet as a dependent person to reduce tax liability. According to Murphy & Higgins tax evasion is when a taxpayer knowingly uses fraudulent methods to reduce the tax liability (2014). Under SSTS 2 the CPA needs to make sure all questions have been answered reasonably before signing the return.
C) This problem follows under SSTS 1 & 3. This is because Glen has been advised how to properly report his earnings by a CPA, and it is up to the CPA to use all reasonable methods to verify the information given. This information is clearly tax evasion. This is because even after being instructed to document this extra income Glen refused to notify the irs of this income.
D) This example is tax avoidance. This is because bob did not sell the land and transfer title until the following year, so the sell does not have to be reported in the current year's returns.
E) This is an example of tax avoidance. This is because Asha purchased and started to use the new equipment in 2013 to take advantage of a special deduction for that year.
https://www.aicpa.org/Research/Standards/Tax/Pages/default.aspx.
Murphy, K., & Higgins, M. (2014). Concepts in federal taxation. Southwestern-Cengage, Mason, OH.