1. You’ve provided tax and accounting advice to Pat and Alex since they married 10 years ago. They tell you they are getting a divorce. They trust you implicitly and ask you assist them in this troubling time. Given your long relationship, and impressed by their desire to settle the divorce amiably, you agree.
Over the following months, however, divorce negotiations steadily deteriorate, and they now communicate only through their attorneys. While finalizing their joint federal and state personal income tax returns, Pat sends an e-mail stating the attorney advises to file separately instead of jointly, as originally agreed.
Discuss this situation and actions to take once you learn of the divorce.
2. You obtain a new 1040 client. The client’s information includes information about three houses rented to tenants. However, it shows rental income only from two of the rental units.
The client offhandedly mentioned a “special arrangement” with respect to the third rental unit. Upon further questioning, you learn this tenant is an attorney who, provides legal services instead of paying rent. The services include review of rental agreements, submitting various legal documents to the city, and other personal and business legal work.
What do you need to discuss with the client? Is there a situation where you cannot sign the return?
3. Your friend Barbara provides tax services for an LLC client with two partners. One partner has a 70% share, and the other a 30% share. The majority partner also engages Barbara separately to provide individual tax preparation services. Barbara has worked for the LLC and its majority partner for the past three years.
One day the majority partner requests Barbara’s confidential advice and guidance regarding how to finance some large debts he has accumulated. Without hesitation, she provides some preliminary advice. Later he leaves a voice message suggesting she come up with some “creative financing” regarding the LLC to help deal with this debt. He also reminds her not to share any of his problems with the minority partner.
She asks you for your thoughts and advice. What will you tell her?
4. You represent the sole proprietor of a business under audit by the Internal Revenue Service. The audit has been progressing smoothly and you have been able to respond in a reasonable way to requests for information which you have received from the revenue agent conducting the audit. However, in response to the most recent information document request, you discover the client sold a few items as casual sales, the proceeds from which do not appear to have been deposited in the corporate bank account or reported as income for federal or state income tax purposes.
- What if any obligation do you have to your client with regard to your discovery?
- What if any obligation do you have to disclose the omission to the agent conducting the audit?
- What do you respond to the client when the client asks you if she has an obligation to disclose the omission to the Service?
- Can you continue to represent the client in the audit if the client decides not to disclose the omission to the Service?
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