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Regulatory Ethics – “ SOUP TO NUTS” (“ ab ovo usque ad mala”)

Regulatory Ethics – “ SOUP TO NUTS” (“ ab ovo usque ad mala”). Joseph H. Thibodeau, Esq. Nick Kellem, Esq. Joseph H. Thibodeau, P.C. www.taxlit.com. Joseph H. Thibodeau.

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Regulatory Ethics – “ SOUP TO NUTS” (“ ab ovo usque ad mala”)

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  1. Regulatory Ethics – “SOUP TO NUTS”(“abovousque ad mala”) Joseph H. Thibodeau, Esq.Nick Kellem, Esq.Joseph H. Thibodeau, P.C.www.taxlit.com

  2. Joseph H. Thibodeau • Joseph H. Thibodeau, Fifty years in practice. Civil and criminal tax controversy resolution. Aviation enforcement matters. Trial attorney, Tax Division, Department of Justice. Governor's Legal Advisor (Michigan). Adjunct professor, Denver University Graduate Tax Program. American College of Tax Counsel; The Best Lawyers in America (since 1987), Who's Who in Practicing Attorneys; Bar Register of Preeminent Lawyers; 5280's Top 100 Denver Lawyers; Super Lawyers (since 2006). Best Lawyers, "Denver Best Lawyers Litigation and Tax Controversy – Tax Lawyer of the Year", 2012. ABA Tax Section, Jules Ritholz Memorial Merit Award recipient, 2013; CBA Tax Section, James E. Bye Lifetime Achievement Award, 2013. Inductee, Colorado Aviation Hall of Fame, 2008; Fmr. Chairman, Colorado Aeronautical Board. Michigan, Colorado, Wyoming, and American (Taxation, Criminal Justice) Bar Associations. NACDL; LPBA; AOPA panel attorney. Active (ATP) pilot. • Practice Area: • Civil and Criminal Tax Controversy • Aviation Enforcement Representation • Education: • University of Detroit School of Law, J.D., cum laude • College of the Holy Cross, A.B. • Bar Admission: • Colorado • Michigan • Wyoming law1@taxlit.com(303)320-1250 Denver, CO

  3. Nick Kellem • Nick Kellem, Mr. Kellem is an associate with Joseph H. Thibodeau, P.C. While his practice is generally limited to representation in connection with civil tax controversies with the Internal Revenue Service and the Colorado Department of Revenue, he has also represented clients before the Colorado Department of Labor and Employment, as well as the taxing authorities of other jurisdictions outside of Colorado. He is a member of the Greater Denver Tax Counsel Association, and, has served as President (2011) and Vice-President (2010) of the Western States Bar Association. • Practice Area: • Civil Tax Controversy • Education: • University of Denver, LLM • Southern Illinois University School of Law, J.D., cum laude • Florida State University, B.S. • Bar Admission: • Colorado 303-320-1250 nkellem@taxlit.com Denver, CO

  4. ThreeServing Two Masters • The Practitioner’s Duties Under Circular 230 § 10.20 • Advocate for the Client • Surrogate IRS Agent • Protection of Him/Her self

  5. History of Circular 230 • Statutory Origin: 31 U.S.C. § 330 (1884) • The “Horse Act” of 1884 • Response to fraudulent Civil War loss claims • Authorized Treas. Regs. governing practice before the Department • First Iteration of the Circular: 1921 • Numerous revisions since, particularly in the last 20 years • Current Rev: June, 2014

  6. Fundamental Concepts • §10.2(4) Practice before the Internal Revenue Service comprehends all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings. • §10.2(5) Practitioner means any individual described in paragraphs (a), (b), (c), (d), (e), or (f) of §10.3. • §10.3 Who may practice: • Terms Defined: Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents • §10.35 Competence • (a) A practitioner must possess the necessary competence to engage in practice before the Internal Revenue Service. Competent practice requires the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged. A practitioner may become competent for the matter for which the practitioner has been engaged through various methods, such as consulting with experts in the relevant area or studying the relevant law. • (b) Effective/applicability date. This section is applicable beginning June 12, 2014. • §10.52 Violations Subject to Sanction • (a) A practitioner may be sanctioned under §10.50 if the practitioner — (1) Willfully violates any of the regulations (other than §10.33) contained in this part; or (2) Recklessly or through gross incompetence (within the meaning of §10.51(a)(13)) violates §§ 10.34, 10.35, 10.36 or 10.37.

  7. §10.22 Diligence to Accuracy • (a) In general. A practitioner must exercise due diligence — • (1) In preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters; • (2) In determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury; and, • (3) In determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.

  8. §10.22 Diligence to Accuracy • (b) Reliance on others. Except as provided in §§ 10.34, 10.35 and 10.37, a practitioner will be presumed to have exercised due diligence for purposes of this sections if the practitioner relies on the work produce of another person and the practitioner used reasonable care in engaging, supervising, training, and evaluating the person, taking proper account of the nature of the relationship between the practitioner and the person.

  9. §10.34 (a) Standards with respect to … Tax Returns • (a) Tax Returns • (1) A practitioner may not “willfully, recklessly or through gross incompetence” • (i) sign a return or claim for refund that he/she knows or reasonably should know contains a position that – • Lacks a reasonable basis • Is an unreasonable position [Section 6694(a)(2)] • Is a willful attempt to understate tax liability • Is a reckless or intentional disregard of rules or regulations; or, • (ii) advise a client to do so.

  10. §10.34 (b) Standards with respect to … Documents/Affidavits/Other Papers • (b) Documents/Affidavits/Other Papers: A practitioner may not • (1) … advise a client to take a position on a document, affidavit or other paper submitted to the Service unless the position is not frivolous • (2) … advise a client to submit a document, affidavit or other paper to the Service • (i) to delay or impede administration of tax laws; • (ii) that is frivolous; or, • (iii) in intentional disregard of rules/regulations, unless he also advises client to submit evidence of a good faith challenge to the rule/regulation

  11. §10.34 (c) Standards with respect to … Advising Clients on Potential Penalties • (c) Advising clients on potential penalties • (1) A practitioner must inform a client of any penalties that are reasonably likely to apply with respect to • (i) a position taken on a tax return, if • (A) The practitioner advised the client with respect to the position; or • (B) The practitioner prepared or signed the return; and, • (ii) any document, affidavit or other paper submitted to the Service. • (2) Practitioner must also inform the client of any opportunity to avoid any such penalties by disclosure, if relevant, and the requirements for adequate disclosure • (3) The paragraph (c) applies, even if practitioner, himself is not subject to penalty with respect to the position or document, etc.

  12. §10.34 (d) Standards with respect to … Relying on Information Furnished by Client • (d) “A practitioner … generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquires if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption or incomplete.”

  13. § 10.20(a)(1) Currently in Effect A practitioner must, on a proper and lawful request by a duly authorized officer or employee of the Internal Revenue Service, promptly submit records or information in any matter before the Internal Revenue Service unless the practitioner believes in good faith and on reasonable grounds that the records or information are privileged.

  14. § 10.20(a)(2)Currently in Effect • Where the requested records or information are not in the possession of, or subject to the control of, the practitioner or the practitioner's client, the practitioner must: • [1] Provide any information that the practitioner has regarding the identity of any person who the practitioner believes may have possession or control of the requested records or information; [and] • [2] Make reasonable inquiry of his or her client regarding the identity of any person who may have possession or control of the requested records or information […]

  15. § 10.20(a) Formerly (Pre July, 2002) In Effect No attorney […] shall neglect or refuse promptly to submit records or information in any matter before the Internal Revenue Service, upon proper and lawful request by a duly authorized officer or employee of the Internal Revenue Service, or shall interfere, or attempt to interfere, with any proper and lawful effort by the Internal Revenue Service or its officers or employees to obtain any such record or information, unless he believes in good faith and on reasonable grounds that such record or information is privileged or that the request for, or effort to obtain, such record or information is of doubtful legality. 15

  16. Attorney-Client Privilege: Where • legal advice is sought, • from a lawyer in his/her capacity as such; Then • the communications relating to that purpose, • made in confidence, • by the client, • are, at the client’s instance, permanently protected, • from disclosure by the lawyer, • unless the privilege is waived. • John Henry Wigmore, Evidence in Trials at Common Law § 2292 (McNaughton rev. 1961). 16

  17. A/C Privilege (cont’d) Purpose: • “[T]o encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.” • Upjohn Co. v. United States, 449 U.S. 383 (1981) 17

  18. § 7525. Taxpayer Communications With Federally Authorized Tax Practitioners (“FAT-P”) • Communications by and between the taxpayer and a federally authorized tax practitioner are protected “to the extent [that such communications] would be considered … privileged … if [they] were between [the] taxpayer and an attorney.” • In noncriminal matters, only. • “[N]o confidential accountant-client privilege exists under federal law, and no state-created privilege has been recognized in federal cases.” • Couch v. United States, 409 U.S. 322, 335 (1973) 18

  19. § 7525. (Cont’d) Inapplicable to communications relating to preparation of tax returns. • See United States v. KPMG, LLP, 237 F. Supp. 2d 35 (D.D.C. 2002) “A taxpayer must not be allowed, by hiring a lawyer […] to obtain greater protection from government investigators than a taxpayer who did not use a lawyer as his tax preparer would be entitled to.” • United States v. Frederick, 182 F.3d 496 (7thCir. 1999). 19

  20. Accountant – Client Privilege • C.R.S. § 13-90-107. Who may not testify without consent. • (f)(I) A certified public accountant shall not be examined without the consent of his or her client as to any communication made by the client to him or her in person or through the media of books of account and financial records or his or her advice, reports, or working papers given or made thereon in the course of professional employment; nor shall a secretary, stenographer, clerk, or assistant of a certified public accountant be examined without the consent of the client concerned concerning any fact, the knowledge of which he or she has acquired in such capacity. • The following states all have statutes that recognize some form of an accountant-client privilege: • Arizona, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, Missouri, Nevada, New Mexico, Oklahoma, Pennsylvania, and Tennessee

  21. Kovel Accountant • United States v. Kovel, 296 F.2d 918 (2d Cir., 1961) • “Accounting concepts are a foreign language to some lawyers in almost all cases, and to almost all lawyers in some cases”. • Friendly, J., Circuit Judge (writing for a 3 Judge Panel)

  22. § 7601. “Canvass the Districts” • Directs the Secretary to roam the realm and inquire after “all … persons who may be liable … [for] any internal revenue tax.”   • Penalties • § 7210—Failure to Obey Summons • Misdemeanor • § 7212—Obstruction: “by force or threats of force …or in any other way…” • Felony • Circular 230 §§ 10.20(b); 10.50; 10.52: Censure, suspend, disbar

  23. § 7602. The Summons Authority • To: • Ascertain the correctness of any return; • Make a return; • Determine taxpayer liability; • Determine transferee/fiduciary liability; and/or, • Collect any tax.

  24. The “Reach” of § 7602. • Relevancy: “[M]ight throw light upon the correctness of the return." • See United States v. Harrington, 388 F.2d 520, 524 (2d Cir. 1968). • “[T]he Service therefore should not be required to establish that the documents it seeks are actually relevant in any technical, evidentiary sense.” • United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984).

  25. Summons Enforcement • Not self-effectuating • District court order required (§ 7604) • Four Prerequisites: • Investigation for a legitimate purpose; • United States v. LaSalle Nat. Bank, 437 U.S. 296 (1978) • Information relevant to that purpose; • Not already in IRS’ possession; • All administrative steps followed; • Overarching requirement: “good faith.” • United States v. Powell, 379 U.S. 48 (1964).

  26. Challenging a Summons • Reisman v. Caplin, 375 U.S. 440 (1964): Taxpayer Summons “Bill of Rights” • 84 cases decided between 6/1/14 – 5/31/15 • 59 government-filed petitions to enforce • 25 motions to quash (taxpayer and/or third-party) • Score: IRS – 81 ; Taxpayers – 2; Split decisions – 1 • 102 cases decided between 6/1/13 – 5/31/14 • Score: IRS – 97; Taxpayers – 2; Split decisions – 3 • 117 cases decided between 6/1-12 – 5/31/13 • 80 government-filed petitions to enforce • 37 motions to quash (taxpayer and/or third-party) • Score: IRS – 111; Taxpayers – 4; Split decisions – 2 Taxpayer Advocate Service – 2013/2014/2015 Annual Report to Congress

  27. Issues of “Doubtful Legality”: • Harassment • Improper purpose or institutional bad faith • Overly burdensome • Vague • Relevance • Scope • Over breadth • Unreasonable time constraint • Fourth Amendment Privilege—Unreasonable search • Fifth Amendment Privilege—Self incrimination • Sixth Amendment Privilege—Interference with right to council • Non-possession • Other • May cross-examine the agent, upon a showing of “plausible evidence” of “bad purpose”. More than a bare allegation. • United States v. Clarke, 134 S.Ct. 2361 (2014)

  28. POA Bypass:Direct Contact with Taxpayer • Unreasonable delay/hindrance • Failure to furnish information • Non-privileged • After repeated requests • Division chief’s approval and written notice required • Internal Revenue Manual 5.1.23.5: By-Passing a Taxpayer’s Representative 28

  29. ABA Formal Opinion 314 “[So] long as his duty is ‘performed within and not without the bounds of the law’, he ‘owes’ entire devotion to the interest of the client, warm zeal in the maintenance and defense of his rights and the exertion of his utmost learning and ability’ to the end that nothing be taken or be withheld from him, save by the rules of law, legally applied, in his practice before the Internal Revenue Service, as elsewhere.” 29

  30. §10.21 Knowledge of Client’s Omission A practitioner who […] knows that the client has […] made an error in or omission from any return […] must advise the client promptly of the […] error [etc…], and of the consequences [thereof]. 30

  31. Amended Returns • “[T]he Internal Revenue Code does not explicitly provide either for a taxpayer's filing, or for the Commissioner's acceptance, of an amended return; instead, an amended return is a creature of administrative origin and grace.” • –Badaracco v. Commissioner, 464 U.S. 386, (1984). • The IRS has discretion to accept or reject an amended return if the original prescribed filing date has passed. • See Goldstone v. Commissioner, 65 TC 113 (1975). 31

  32. Treasury Regulations • §1.451-1 General Rule for Taxable Year of Inclusion • (a) General rule—(1) […] If a taxpayer ascertains that an item should have been included in gross income in a prior taxable year, he should, if within the period of limitation, file an amended return and pay any additional tax due. […] • §1.461-1 General Rule for Taxable Year of Deduction • (a) General rule –(3) […] [I]f a taxpayer ascertains that a liability was improperly taken into account in a prior taxable year, the taxpayer should, if within the period of limitation, file an amended return and pay any additional tax due. […] 32

  33. AICPA Statement on Standards No. 6 • A member should • Inform the taxpayer promptly upon becoming aware of an error; • Advise the taxpayer of the potential consequences of the error; and, • Recommend the corrective measures to be taken. • It is the taxpayer’s responsibility to decide whether to correct the error, or not.

  34. §10.29 Conflicting Interests • § 10.29(a) Except as provided by paragraph (b), a practitioner may not represent conflicting interests. A conflict of interest exists if — • (1) The representation of one client will be directly adverse to another client; or • (2) There is a significant risk that the representation of one or more clients will be materially limited by the practitioner’s responsibilities to another client, a former client or a third person, or by a personal interest of the practitioner. • Waivers • (b) Notwithstanding ¶ (a), the practitioner may represent a client if — • (1) The practitioner reasonably believes that he/she will be able to provide competent and diligent representation to each affected client; • (2) The representation is not prohibited by law; and • (3) Each affected client waives the conflict of interest and (not more than 30 days later) gives informed consent, confirmed in writing by each affected client, at the time the existence of the conflict of interest is known by the practitioner… • (c) Copies of the written consents must be retained by the practitioner for at least 36 months from the date of the conclusion of the representation of the affected clients… and, must be presented to any IRS officer or employee upon request. • Some conflicts may not be waivable, US. v. Wheat, 486 U.S. 153 (1988); ABA Model Rule 1.7

  35. Annual Filing Season Program • The Annual Filing Season Program (AFSP) “… aims to recognize the efforts of non-credentialed return preparers who aspire to a higher level of professionalism”; • Voluntary; • 18 hours of continuing education; • 6 hours of federal tax law (and test); • The return preparer must also renew his/her preparer tax identification number (PTIN) for the upcoming year; • Must consent to adhere to the obligations in Circular 230, Subpart B and § 10.51; • Upon completion, an Annual Filing Season Program – Record of Completion from the IRS; and • Required for representation of clients before the Service, for returns prepared after 12/31/15.

  36. §10.27 Fees • (a) In general. A practitioner may not charge an unconscionable fee in connection with any matter before the Internal Revenue Service. • (b) Contingent fees — • (1) Except as provided in paragraphs (b)(2), (3), and (4) of this section, a practitioner may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service. • (2) A practitioner may charge a contingent fee for services rendered in connection with the Service’s examination of, or challenge to — (i) An original tax return; or (ii) An amended return or claim for refund or credit where the amended return or claim for refund or credit was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to the original tax return • (3) A practitioner may charge a contingent fee for services rendered in connection with a claim for credit or refund filed solely in connection with the determination of statutory interest or penalties assessed by the Internal Revenue Service. • (4) A practitioner may charge a contingent fee for services rendered in connection with any judicial

  37. Ridgely v. Lew, 55 F.Supp 3d 89 (2014) • At issue: § 10.27 – “Contingent Fees” • Preparation of a “Ordinary Refund Claim” • OPR: Can’t do a “contingent fee” basis • OPR: contingent fee allowed” • For services rendered in connection with the IRS’ examination of, or challenge to, an original return; • An amended return/claim for refund filed within 120 days of notice of examination or challenge to original return • A claim for refund solely for interest/penalties; and, • Services in re a judicial proceeding. • CHT: § 10.27 (31 CFR § 10.27) can’t preclude contingent fee in re “Ordinary Claim for Refund” • 31 USC § 330(a)(1) authorizes the Secretary to “regulate the practice of representatives of persons before the Department of Treasury” • Not “practice” before the Service until issue-joined; until interaction with Service • Not “representation” until advocating a position with IRS • Practitioner doesn’t do either until POA is submitted (has legal authority to represent) and “fight’s on” (“presentation of cases”) • See Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014). In re: “PTINs”. Kavanaugh

  38. Title 26 (Tax) Felonies: §7201 – Evasion (“Fraud”: “attempt … to evade or defeat.”) §7202 – Failure to Collect and Pay Over §7206(1) – False Statements §7206(2) – Aiding and Abetting in re False Statements §7212(a) – Obstruction (by force, threat, or in any other way, which obstructs or impedes the Administration of Title 26) §7216 – Disclosure of Information by Prepares §7302 – Forfeiture of Property Used in Violation of Revenue Laws Misdemeanors: §7203 – Failure to File (to supply information §7204 – Fraudulent Statement or Failure to Make Statement to Employees §7205 – Fraudulent Withholding Exemption Certification or Failure to Supply Information §7207 – Fraudulent Returns, Statements, or Other Documents §7210 – Failure to Obey a Summons §7212 (a) – Offense With Respect to Collected (Employment) Tax

  39. Felonies: § 2 – Aiding and Abetting § 287 – False Claims for Refund § 371 – Conspiracy §1001 – False Statements §1341 – Mail Fraud §1343 – Wire Fraud §1503 – Obstruction (Officer, or Grand or Petit Jury Witness) §1505 – Obstruction (Agency, Committee Proceedings) §1510 – Obstruction (Criminal Investigation) §1512 – Obstruction (Generally) §1621 – Perjury §1622 – Subornation of Perjury §1956 – Money Laundering §1957 – Dealing in Property Derived from Specified Unauthorized Activity (SUAs) §1963 – RICO Title 18 (Criminal Code)

  40. Title 31 (Banking) Felonies: §§ 5322, 5324 – Structuring to Evade Financial Transaction Reporting Requirements (viz., for example, CTRs, CMIRs, FBARs, 8300s, Casino 8300s, etc.)

  41. Who is the client? • 1. Married couples filing a joint return - duties to two clients; • 2. Businesses - are you preparing returns for just the business, or, the owners? • 3. Nonprofits - just the entity, or, the Board?

  42. May the practitioner ethically assist the client with the preparation? • Can the practitioner legally and ethically prepare a tax return for a marijuana operation? • 18 U.S.C. 2(a) - Whoever commits an offense against the United States, or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. • Rule 1.2 - Scope of Representation and Allocation of Authority Between Client and Lawyer. • 2014 Office of Professional Responsibility Report. • The Colorado Board of Accountancy's Position Statement Regarding Certified Public Accountant Certificate Holder's Providing Services to the Marijuana Industry. • The AICPA issued a statement on July 24, 2015 - An Issue Brief on State Marijuana Laws and the CPA Profession. • ***Please be aware of Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, and advise clients accordingly. ****

  43. Conflicts of Interest • a. Does the preparer have a financial interest in the outcome of the tax return? • b. Is there disagreement between shareholders or members of the business entity? • c. Is there disagreement between spouses? • d. Circular 230 - Section 10.29

  44. Discovery of Errors on Returns Already Filed • Circular 230, § 10.21 • AICPA, Statement on Standards for Tax Services, No. 6 (part 5) • See Badaracco v. Commissioner, 464 U.S. 386 (1984). • No duty to file an amended return, as an amended return is a creature of administrative origin and grace. It does not have to be accepted. • No duty to file amended returns by client or practitioner, but, practitioner has a duty to advise the client about the consequences of not filing an amended return. • See Broadhead v. Commissioner, T.C. Memo. 1955-328. • A failure to file a correct amended return, even after arecommendation by a professional to do so, is not an indicia of fraud. See Broadhead v. Commissioner, T.C. Memo. 1955-328.

  45. Preparer Penalties • I.R.C. § 6694 • I.R.C. § 6695 • I.R.C. § 6713

  46. Office of Professional Responsibility Sanctions • Circular 230, Section 10.50 provides for; • a. Censure (public or private); • b. Suspension; • c. Monetary penalties; and/or, • d. Disbarment.

  47. Hypothetical 1:New Client X is seeking your services as a tax return preparer. Should you agree to represent the client? • Factors to look at: •   i. Were the prior returns self-prepared? •   ii. If the prior tax returns were prepared by a professional, what are/were the credentials of the professional (unenrolled preparer, enrolled agent, CPA, or, attorney)? •   iii. How did the potential client find you? •   iv. What kind of business does the potential client own and/or operate? • v. Are the income and/or expenses claimed on the prior tax returns commensurate with the type of business the potential client claims to own and/or operate? •   vi. Does the potential client operate with a lot of cash? •   vii. What were the reasons provided to you for the change in preparers (or, the switch from preparing the returns without professional assistance)? •   viii. What does your gut tell you?

  48. Hypothetical 2:Same fact pattern, except you discover at the initial client meeting that the prior tax returns have errors. • i.Look at all factors above. • ii. Will the prior errors impact the tax return for the current year (depreciation, net operating loss carryforward, etc.)? • iii. What is the potential client's reaction to the possibility of amending the prior tax returns? • iv. How material are the errors? • v. How credible is it that the errors were merely an oversight or negligence, and not willful?

  49. Hypothetical 3:You have prepared joint tax returns for a married couple for over a decade. Their income is typically modest, and the tax returns are relatively basic in nature. This year, however, you notice that one spouse has recognized a significant gain on the disposition of an asset. You also notice that no tax has been paid on this disposition, and the tax due is significant. • a. Do you have a duty to inquire about the disposition (what happened, why was the tax not paid, etc.)? • b. Do you have a duty to inquire about whether or not the tax will be paid with the return? • c. If you are advised that the proceeds of the asset were fully dissipated and the tax will not be paid, should you advise the other spouse that he or she can file a separate tax return? • d. Once again, how many clients are you serving?

  50. Hypothetical 4:You have a client with substantial travel expenses which are well-documented. You note that the client has substantial income from customers overseas, and, appears to be living at least part of the year overseas. Is there a duty to inquire about the existence of foreign bank accounts, and, of filing FBAR's?

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