CPA Tax Return Preparer Verifying Client Information

Question Description

Should a CPA tax return preparer have a duty to verify the information provided to them by clients? Why or why not?

What is tax fraud? How can you detect it? If you suspect tax fraud, what should you do?

Jim, your tax client, brings you a prospectus on a new investment idea that also has significant tax benefits. It is a pretty thick book and, as you go through it, there is a letter from a local law firm that describes the tax benefits based on a Code section you have never heard of and a case that seems a bit “out there.”

a. What steps should you take before advising Jim as to whether the tax benefits which are claimed in the prospectus are legitimate?
b. If you conclude that the position is bogus and Jim invests against your advice, how does that impact you when preparing future tax returns for Jim?

4. Your brother-in-law owns a car wash and is unhappy with his CPA’s client service. Naturally, you are asked to help and, to keep peace in the family, agree to prepare his corporate and personal tax returns. As he brings you the information, you are shocked to see that the business nets about $50,000 per year, yet you know he has three new cars, a huge house and consistently buys your sister expensive jewelry.

a. How would you handle this situation?
b. Do you have any legal or professional responsibilities to investigate?