1(a). You have a client that you have prepared their returns for the past 5 years with no issues. While you are preparing the client's 2021 returns, the client requests that a deduction is taken that will reduce the client's taxable income from $250,000 to $150,000 and their tax liability from $75,000 to $45,000 (assuming a flat 30% tax rate). After researching the issue for a few hours, you estimate that the position has an approximate 20-25% chance of success. How do you advise this client under Circular 230, accounting standards, and from a practical standpoint? 1(b). You have prepared the partnership return and K-1s for AB, LLC (taxed as a partnership) since its organization 10 years ago. It is one of your best clients. AB, LLC is owned as follows: Mr. A (51%) and Mr. B (49%). Other than sending a K-1 to Mr. B, all of your correspondence is typically with Mr. A. You do not prepare Mr. B's individual return, but you do prepare Mr. A's and his spouse's personal return. For the first time this year, you notice that Mr. A has included a number of personal expenses that were paid with company credit cards (e.g., groceries, house utilities, vacations, etc.) on his list of business expenses. Going forward how do you advise AB, LLC and Mr. A (and his spouse) under Circular 230, accounting standards, and from a practical standpoint?
1(a). You have a client that you have prepared their returns for the past 5 years with no issues. While you are preparing the client's 2021 returns, the client requests that a deduction is taken that will reduce the client's taxable income from $250,000 to $150,000 and their tax liability from $75,000 to $45,000 (assuming a flat 30% tax rate). After researching the issue for a few hours, you estimate that the position has an approximate 20-25% chance of success. How do you advise this client under Circular 230, accounting standards, and from a practical standpoint?
1(b). You have prepared the partnership return and K-1s for AB, LLC (taxed as a partnership) since its organization 10 years ago. It is one of your best clients. AB, LLC is owned as follows: Mr. A (51%) and Mr. B (49%). Other than sending a K-1 to Mr. B, all of your correspondence is typically with Mr. A. You do not prepare Mr. B's individual return, but you do prepare Mr. A's and his spouse's personal return. For the first time this year, you notice that Mr. A has included a number of personal expenses that were paid with company credit cards (e.g., groceries, house utilities, vacations, etc.) on his list of business expenses. Going forward how do you advise AB, LLC and Mr. A (and his spouse) under Circular 230, accounting standards, and from a practical standpoint?
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