Reference no: EM133765530

1. A corporate client incurred substantial penalties for understating its tax liability. As a result, it has accused its tax return preparer in a lawsuit of act- ing "below the standard of care" and "recklessly" for failing to apply the substantial authority standard in preparing this client's tax return. In support of its claims, the client's attorney has pointed out to the jury that AICPA Standards generally require that a tax position meet the substantial authority standard. The client is suing to recover the penalties imposed by the taxing authority as damages. The tax law did not establish any particular standard of reporting regarding this taxpayer's tax positions.

Can the tax return preparer successfully defend this lawsuit by pointing out that she is not a CPA?
If this tax return preparer was a CPA, could she successfully defend this lawsuit by pointing outthat she is not a member of the AICPA?
Doesataxpositionalwayshavetomeet,atmin-imum, the substantial authority standard?
2. Your client has given you a list stating that her charitable contributions were $20,000 last year. This amount would constitute nearly 10% of her take- home pay. It also is a larger percentage of income than you customarily see clients giving to charity. Do you have a duty to verify the accuracy of this chari- table deduction?

3. Your client has given you a list stating that her charitable contributions were $90,000 last year. This amount is more than her take-home pay last year. Do you have a duty to verify the accuracy of this charitable deduction?

4. You have prepared tax returns for Christine and Henry Chang for several years. This year, they emailed you, stating that they have finalized their divorce but they "remained friendly" and want you to prepare each of their individual tax returns. They did insist, however, that each's financial affairs be kept confidential from the other. When Christine brought in her tax records, she listed all three of her children as dependents and pro- vided information showing that they attended school in her neighborhood, which is about 40 miles from where Henry lives. Christine's oldest son, John, is 17 years old. Christine provided you with a photo- copy of his driver's license, which shows his address as being Christine's residence. Accordingly, you filed Christine's tax return, claiming all three children as her dependents. When Henry brought in his tax records, he also listed all three children as his dependents. He brought in a copy of their divorce decree. In a signed document incorporated into this decree, Christine expressly waived her right to claim their children as dependents on her tax return, in exchange for her receiving increased alimony. Based on your online research, the custodial parent who has physical custody of the children a majority of the time generally is entitled to claim children as dependents unless the right to this depen- dency exemption has been transferred by a signed writing to the noncustodial parent.

When you prepare Henry's tax return, may heclaim the three children as dependents on hisindividual tax return?
What,ifanything,shouldyoutellChristine?
What,ifanything,shouldyoutelltheIRS?

9. A computer virus destroyed all of your client's files concerning depreciation expense and fixed assets. All other tax records for this manufacturing client remain intact. How should you report depreciation on this client's tax return?