Reference no: EM132777806

Problem 1: Evaluate some of the ethical guidelines involved in tax practice.

The American Institute of CPAs has issued its "Statements on Standards for Tax Services," dealing with CPAs engaged in tax practice. These pronouncements are enforceable as part of its Code of Professional Conduct. They include the following summarized provisions:

1. Do not take questionable positions on a client's tax return in the hope the return will not be selected for audit by the IRS. Any positions taken should be supported by a good-faith belief that they have a realistic possibility of being sustained if challenged. The client should be fully advised of the risks involved and of the penalties that will result if the position taken is not successful.
2. A practitioner can use a client's estimates if they are reasonable under the circumstances. If the tax law requires receipts or other verification, the client should be so advised. In no event should an estimate be given the appearance of greater accuracy than is the case. For example, an estimate of $1,000 should not be deducted on a return as $999.
3. Every effort should be made to answer questions appearing on tax returns. A question need not be answered if the information requested is not readily available, the answer is voluminous, or the question's meaning is uncertain. The failure to answer a question on a return cannot be justified on the grounds that the answer could prove disadvantageous to the taxpayer.
4. Upon learning of an error on a past tax return, advise the client to correct it. Do not, however, inform the IRS of the error. If the error is material and the client refuses to correct it, consider withdrawing from the engagement. This will be necessary if the error has a carryover effect and prevents the current year's tax liability from being determined correctly.