Question

C: 15-65

Chapter 15 Graded Case Study: Administrative Procedures

A long-time client, Horace Haney, wishes to avoid currently recognizing revenue in a particular transaction. A recently finalized Treasury Regulation provides that, in such a transaction, revenue should be currently recognized. Horace insists that you report no revenue from the transaction and, furthermore, that you make no disclosure about contravening the regulation. The IRC is unclear about whether the income should be recognized currently. No relevant cases, revenue rulings, or letter rulings deal specifically with the transaction in question.

Required: Discuss whether you, a CPA, should prepare Horace’s tax return and comply with his wishes. Assume that recognizing the income in question would increase Horace’s tax liability by about 25%.

Answer 1

As a CPA, one is required to abide by Treasury Regulation and not listen to Horace Haney. Horace Haney should be apprised of the additional tax liability and if Horace refuses to comply, then the CPA should not prepare Horace's tax return and comply with his wishes.