At least 2 pages long with 3 peer-reviewed references.
1-2. John Haddock owns 75 percent of Haddock Corporation. The other 25 percent of the stock is held by John’s wife, Marsha. You are a tax manager assigned to prepare the corporate tax return for Haddock. While working on the return, you note that Haddock Corp. pays rent to John for a building he owns with his son, John, Jr. The rent being paid is at least three times the normal rate for rentals of similar property in that area of town. You report this observation to the partner on the engagement. She tells you that it is all right to deduct the payments because Haddock Corp. has been doing it for several years, and the IRS never has objected. Under your firm’s policy, managers sign the tax return for clients.
a.Would you sign this tax return?
b.What potential ethics issues do you see in this situation?
1.4 Big CPA Firm has many partners in one of its local offices. Two of these partners are Tom, a tax part-ner, and Alice, an audit partner. Because of the size of the office, Tom and Alice do not know each other very well.Tom has a tax client, Anchovy Corporation, that is in severe financial trouble and may have to file for bankruptcy. Anchovy is a customer of Sardine Corporation, one of Alice’s audit clients. Accounts receivable on Sardine’s books from Anchovy are significant. If Anchovy goes bankrupt, it could cause serious problems for Sardine. Alice is unaware of the bad financial condition of Anchovy.
a. Can Tom disclose to Alice the problems at Anchovy?
b. What if Anchovy goes under and takes Sardine with it?
c. What potential ethics issues do you see in this situation?
1.16 Carla and Scott were married some years ago and have six-year-old twin daughters, Jackie and Kara. In 2015, they divorced. Their divorce decree includes a court order indicating that Carla is to have physi-cal custody of the children and Scott may have the children for up to 4 weeks per year. The decree also indicates that Scott may “‘claim the girls’ dependent exemptions on his tax returns until the girls are 18.” Carla comes to your office at the start of the 2020 tax season as a new client. She indicates that she has read in the financial press that the TCJA repealed exemptions. During 2019, the children lived with Carla the entire year except when they stayed with Scott for the month of July. Carla requests that you prepare and file her 2019 income tax return claiming the child tax credit for each of the girls. Can you prepare and file Carla’s return in the manner that she has requested?
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