Reference no: EM133261836

Assignment:

Tax Preparer's Penalties

For each of the following independent cases, indicate whether you believe any penalty would be assessed under ITA 163.2 on any of the parties involved.

Please explain your conclusion...

Case 1

In preparing a tax return for one of his clients, an accountant uses the financial statements of another accountant to determine the client's business income. The accountant does not see any-thing in these statements that seems unreasonable.

When his client's return is audited, the CRA finds that the business income financial statements prepared by the other accountant contained material misrepresentations.

Case 2

In preparing a tax return for a new client, an accountant uses the client's accounting statements to calculate the client's business income. As part of this engagement, the accountant reviews both the expense and revenue information that has been provided to him by the new client. The expenses seem to be related to the type of business of the client and the revenue and expenses contained in the accounting statements seem reasonable. Given this, the accountant flies the required tax return.

When the client is audited, the CRA finds a large proportion of the expenses claimed cannot be substantiated by adequate documentation and may not have been incurred. Furthermore, it appears that the client has a substantial amount of unreported revenues.

Case 3

In preparing a tax return for a new client, the accountant determines that his only income is $75,000 in business income. The accountant is advised by the client that he made a $110,000 charitable contribution during the current year. However, he has lost the receipt. He has requested a replacement but has not received it yet. 

As it is now April 29, to avoid a late fling penalty the accountant files the tax return, claiming a tax credit for the contribution without seeing the receipt.