Statements on standards for tax services no 3-certain

Reference no: EM13589902

Statements on Standards for Tax Services No. 3-Certain Procedural Aspects of Preparing Returns. Tax returns are based on information provided by the client. This statement sets forth the applicable standards for members concerning this information. Specifically, in preparing or signing a return, members are not required to examine or verify a client's supporting data. A member may rely on information supplied by the taxpayer unless the information appears to be incorrect, incomplete, inconsistent, or unreasonable under the circumstances. However, if the applicable law or regulations impose a specific record keeping requirement to claim a deduction, the member should inquire and satisfy himself or herself that the required records do exist. Members are specifically encouraged to make use of a taxpayer's returns for one or more prior years in preparing the current return, whenever feasible. The practice should help avoid the omission or duplication of items and provide a basis for the treatment of similar or related transactions.

Situation:

A client, Mal Manley, fills out his client questionnaire for the previous year and on it provides information for the preparation of his individual income tax return. The IRS has never audited Mal's returns. Mal reports that he made over 100 relatively small cash contributions totaling $24,785 to charitable organizations. In the last few years, Mal's charitable contributions have averaged about $15,000 per year. For the previous year, Mal's adjusted gross income was roughly $350,000, about a 10% increase from the year before.

Directions: Apply Statements on Standards for Tax Services No. 3 (As shown Above)

1. Determine whether you can accept at face value Mal's information concerning his charitable contributions.

2. Now assume that the IRS recently audited Mal's tax return for two years ago and denied 75% of that year's charitable contribution deduction because the deduction was not substantiated. Assume also that Mal indicates that, in the previous year, he contributed $25,000.

3. How do these changes of fact affect your earlier decision?

Reference no: EM13589902

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