Tax Accounting II Case - Essay Example

of Ethical Standards of Tax Professionals Q2. In your view is the position taken by Mr. Conor tax evasion or tax avoidance? This researcher views the position taken by Mr. Conor as not tax evasion since what he knew was that his tax accountant or CPA was presumed to have known and agreed that he was claiming the cost for artworks as deductible expenses. He should be presumed in good faith if there was any error. The fact that he asked his CPA subsequently about the possible deduction was a proof of that good faith.

After inquiry, it was only at that point when the accountant denied having given consent on the prior claim for deduction made. In fact, he did not hide it to Mr. Schneider as his tax professional in the latest filing of his income tax returns.1 The accountant may be considered to have knowledge of things done in the past about deducting the cost of artwork as part of deductible expenses. As to whether there could be tax assessment by IRS because of possibly underreported income due to higher reported expenses in the past, the same should be viewed as tax avoidance because there was really no intention to avoid or cheat on taxes.

Moreover, it could be inferred from the case fact that claiming the cost of artworks as deductible business expense is allowed if treated or given as a kind of employee compensation.2 The difference between tax avoidance and tax evasion is that the former is legal as a way to reduce tax but the latter is against the law because there is an intention to defraud the government for the correct payment of taxes. In the case of Mr. Conor, he did not intend not to pay taxes, he claimed in good faith the cost artwork as business expense with the presumed knowledge of the accountant although the latter failed to object in previous years.

In tax avoidance, which is a legitimate minimizing of taxes, the taxpayer should use methods approved by the IRS.3 Mr. Conor was only lacking in knowledge of method on how deduction could be made legitimate. Thus his CPA said that expense is allowed if given as employee compensation. It would have been tax evasion if Mr. Conor was not allowed at all to have claimed as expense the cost of artworks. The same would amount to reporting expenses that are not allowed and thereby understating income and the related tax.

The fact also that half of the cost of artwork was now claimed in the latest tax return with the consent of the CPA should support the argument that the method used earlier was an allowed by and therefore a tax avoidance was more applicable than tax evasion.4 Q2. In your view has Mr. Schneider complied with professional norms of conduct as spelled out in the AICAP’s Statement on Standards for Tax Services (SSTS) and in IRS Circular 230? This researcher views that Mr. Schneider has not fully complied with the professional norms of conduct as spelled out in the AICPA’ SSTS. SSTS No. 6 of AICPA requires any of its members who would come to know an error in a taxpayer’s previously filed return to inform the taxpayer promptly upon becoming aware of the error.

The member CPA so informing should also advise the taxpayer of the potential consequences of the error and recommend corrective measures to be taken, either orally or otherwise. 5 Mr. Schneider failed to advise Mr. Conor about the consequences of the error in the previously filed return the cost of artworks were claimed as business expense. The only thing that the CPA did is to sign with the Mr. for the filing of ITR of Mr. Conor and claiming half of the cost of artwork as expense. Such as is short of advising the taxpayer of the consequences of error.

6 He also failed to conform to the requirements of IRS Circular 230. Under §10.21 of said circular, when the professional comes to know of the clients omission or non- compliance with revenue laws of the United States, said professional must advise the client promptly of the fact of such non-compliance, error or omission. The professional must advise the client of the consequences provided under the Code and regulations of such non-compliance, error or omission.7 In the instant case, there was no advice by Mr.

Schneider of the consequence of the possible violation or noncompliance as about the cost of artworks claimed as deduction in the past before he was asked by client.8 Works Cited“Statement on Standards for Tax Services No. 6, Knowledge of Error: Return Preparation and Administrative Proceedings.” 2009. AICPA. 22 March 2011 Case Study -- Ethical Standards for Tax Professionals“IRS Circular 230” 2008. IRS. 22 March 2011 Hoffman et al. South-Western federal taxation: individual income taxes.

Cengage Learning, 2009