Ethical Considerations for Tax Professionals: A Case Study - Essay Prowess

Ethical Considerations for Tax Professionals: A Case Study


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Please post a thread of 400-500 words with at least four citations in the current APA format due by Thursday Scenario – John Haddock owns 75 percent of Haddock Corporation. The other 25 percent of the stock is held by John’s wife, Marsha. You are a tax manager assigned to prepare the corporate tax return for Haddock. While working on the return, you note that Haddock Corp. pays rent to John for a building he owns with his son, John, Jr. The rent being paid is at least three times the normal rate for rentals of similar property in that area of town. You report this observation to the partner on the engagement. She tells you that it is all right to deduct the payments because Haddock Corp. has been doing it for several years, and the IRS never has objected. Under your firm’s policy, managers sign the tax return for clients.

  1. Would you sign this tax return? Why or why not? Be sure to cite research that supports your position.
  2. What potential ethics issues do you see in this situation?
  3. Which AICPA Code of Professional Conduct rule(s) apply in this situation (explain how and why they apply)?
  4. Which Statement(s) on Standards for Tax Services apply in this situation (explain how and why they apply)?
  5. Cite the specific verse(s) for at least one Biblical principle that you feel is relevant to the situation (explain how and why it

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As a tax manager, it is my professional responsibility to adhere to ethical standards and ensure that the tax returns I prepare are accurate and comply with all applicable laws and regulations. Based on the information provided, I would not feel comfortable signing the tax return for Haddock Corp. in its current form.

One potential ethical issue in this situation is the possibility of tax evasion. By paying rent to John Haddock at a rate that is significantly higher than the market value of similar properties, Haddock Corp. may be attempting to reduce its taxable income by inflating its expenses. This could be considered tax evasion, which is illegal and unethical.

In addition to the potential ethical issues, this situation also raises concerns about my own professional liability. As a tax professional, I am responsible for the accuracy and completeness of the tax returns I prepare. If the IRS were to audit Haddock Corp. and discover that the company was claiming improper deductions, I could potentially be held liable for any penalties or fines that result.

The AICPA Code of Professional Conduct applies to this situation in several ways. Rule 101, Integrity and Objectivity, requires that I maintain objectivity and integrity in all of my professional activities. This means that I must be unbiased and objective when preparing tax returns, and I must not allow my personal interests or relationships to influence my professional judgment. Rule 202, Compliance with Standards, also applies in this situation, as it requires that I comply with all applicable laws and regulations when preparing tax returns.

The Statement on Standards for Tax Services (SSTS) also applies to this situation. SSTS No. 1, Due Care, requires that I exercise due care in preparing tax returns by carefully reviewing the information provided and ensuring that the return is complete and accurate. SSTS No. 2, Scope and Nature of Services, requires that I only provide services that I am competent to perform and that are within the scope of my professional expertise. In this case, preparing a tax return that may involve questionable deductions falls outside the scope of my professional expertise and could potentially expose me to liability.

One Biblical principle that is relevant to this situation is the concept of honesty and integrity. Proverbs 11:3 states, “The integrity of the upright guides them, but the crookedness of the treacherous destroys them.” This verse emphasizes the importance of honesty and integrity in all of our actions, and it reminds us that our actions have consequences. In this situation, signing a tax return that may contain questionable deductions could potentially have serious consequences for both Haddock Corp. and myself. As a tax professional, it is important that I maintain integrity and honesty in all of my work, and that I follow all applicable laws and regulations to the best of my ability.

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