Question

What are some of the practical and ethical implications of consolidated returns at the state, federal, and international levels?

Answer 1

Many states now allow their residents to report a liability for state use taxes on their individual income tax returns. The rules vary by state, but using the individual income tax return to report a use tax liability is usually a convenience and not a requirement. As more states adopt this approach, practitioners will have to explain to clients their obligations in reporting any use tax liability and address the professional standards for reporting use tax on a state income tax return.

While this item focuses solely on the application of the AICPA’s Statements on Standards for Tax Services to state use tax reporting, CPAs should be aware of any applicable state professional standards that might apply in the states in which their clients file returns.

When it is impractical to obtain exact data, a CPA can also use client estimates when preparing a tax return reporting use tax if the CPA believes (based on professional judgment) the use tax estimates are reasonable in light of the known facts and circumstances. A CPA should inform a taxpayer promptly when he or she becomes aware of a taxpayer’s failure to file a required return.