George's long-time client, Henrietta, brought in business records this year showing $40,000 of business income and $30,000 of related expenses. In prior years, her expenses have been closer to $10,000. Which of the following should George do to ensure that he complies with his Circular 230 duty of due diligence as to accuracy? Refuse to prepare the return unless Henrietta can provide receipts for each individual expense. Review the records Henrietta provided to see if they adequately explain the sharp increase in expenses. If he has any remaining questions, he should ask Henrietta to explain. Independently investigate by calling a random sample of the vendors listed to verify that Henrietta really paid the amounts claimed. Prepare Henrietta's return using the expenses listed on the prior-year return.
George's long-time client, Henrietta, brought in business records this year showing $40,000 of business income and $30,000 of related expenses. In prior years, her expenses have been closer to $10,000. Which of the following should George do to ensure that he complies with his Circular 230 duty of due diligence as to accuracy?
Refuse to prepare the return unless Henrietta can provide receipts for each individual expense.
Review the records Henrietta provided to see if they adequately explain the sharp increase in expenses. If he has any remaining questions, he should ask Henrietta to explain.
Independently investigate by calling a random sample of the vendors listed to verify that Henrietta really paid the amounts claimed.
Prepare Henrietta's return using the expenses listed on the prior-year return.
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