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Francis Loyer 

3 posts

· L – P: Client informs tax practitioner that client incurred $200 in out-of-pocket office supplies expenses.

Answer: Topic 7 DQ 1

It is important to understand the importance of the professional duty of a tax preparer under the AICPA’s Statements on Standards for Tax Services. First, the Statements on Standards for Tax Services (SSTSs) are the AICPA's enforceable tax practice standards and apply to all AICPA members providing tax services. This standard addresses a member's obligations when recommending tax return positions or preparing or signing tax returns filed with any taxing authority. Next, to answer the part of the question that a client informs a tax practitioner that they incurred $200 in out-of-pocket supplies expenses. Statement No. 3 addresses (1) whether tax practitioners can reasonably rely on information supplied to them by the taxpayer, (2) when they have a duty to examine or verify such information, (3) when they have a duty to make inquiries of the taxpayer, and (4) what information they should consider in preparing a tax return (Anderson, Hulse, & Rupert, 2020). Basically, under SSTS No. 3​, it is the tax​ practitioner's responsibility to verify the expense. Also, under SSTS No. 3​, the tax practitioner is under no duty to verify the expense amount unless it appears​ incorrect, incomplete, or inconsistent on its​ face, or on the basis of other facts known to the practitioner.

Finally, the preparer’s declaration does not require a member to examine or verify supporting data; a member may rely on information furnished by the taxpayer unless it appears to be incorrect, incomplete, or inconsistent. However, there is a need to determine by inquiry that a specifically required condition, such as maintaining books and records or substantiating documentation, has been satisfied and to obtain information when the material furnished appears to be incorrect, incomplete, or inconsistent. Although a member has certain responsibilities in exercising due diligence in preparing a return, the taxpayer has the ultimate responsibility for the contents of the return. Thus, if the taxpayer presents unsupported data in the form of lists of tax information, such as dividends and interest received, charitable contributions, and medical expenses, such information may be used in the preparation of a tax return without verification unless it appears to be incorrect, incomplete, or inconsistent either on its face or on the basis of other facts known to a member (AICPA, 2021)

Anderson, K., Hulse, D., & Rupert, T. (2020). Pearson's Federal Taxation 2020 Corporations, Partnerships, Estates, and Trusts. Retrieved from https://etext-ise.pearson.com/courses/5948317/products/147974/pages/1?locale=&platformId=1030&isTpi=Y

AICPA. (2021). Statements on standards for tax services overview. AICPA. Retrieved August 20, 2021, https://future.aicpa.org/resources/article/statement-on-standards-for-tax-services-no-3-certain-procedural-aspects-of

 

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Paul Fukem  

1 posts

· F – K: Client refuses to file an amended return to correct a deduction error.

Answer: Topic 7 DQ 1

A tax practitioner, a tax advisor, a tax consultant are all titles used to describe a tax professional. These are individuals will proper knowledge, skills, and expertise in the field of taxation. This can be acquired through education and experience. A taxpayer hired the services of a tax practitioner prepare their tax returns.

AICPA’s Statements on Standards for Tax Services outlines the course of action by tax practitioners when certain specific occurrences take place. This is a guide for tax professions.

In the case of a client refusing to file an amendment due to a duction error, AICPA’ Statement No 6 answered the question. It states the taxpayer should be promptly informed of the error on prior year return if it can result to an administrative proceeding such as an audit. The tax professional should educate the taxpayer on the potential consequences of the error if not corrected. In this case, possible audit, which can lead to an increased tax liability, interest on the underpaid taxes, penalties, which can be monetary, civil and or criminal charges, thus jail time.

The tax professional should also inform the taxpayer of the corrective measures to be taken to correct the error. The professional is not obligated to report the error to the IRS and may not do so without the knowledge of the taxpayer, except it is required by the law.

If in this case the same taxpayer hired the services of the same tax professional to file the current year tax return, the tax professional should seek the agreement of the taxpayer to disclose the error. If this request is denied, then the professional must use discretion as to whether continue the relationship with the taxpayer or terminate it. All the recommendations offered to a taxpayer should be recorded including verbal ones. This is to protect the tax practitioner down the line from liabilities.

 

Reference.

- Anderson, K. E, Hulse, D. S., & Rupert, T. J. (Eds.). (2020). Pearson's federal taxation 2020: Corporations, partnerships, estates and trusts (33rd ed.).

-https://future.aicpa.org/resources/toolkit/statements-on-standards-for-tax-services

 

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Description

The tax laws associated with foreign transactions are found in the 900s section of the Internal Revenue Code (IRC). Using the first letter of your last name, answer the question below for which the letter of your name falls in the range. Use your own words to summarize the information from the tax code. Provide proper citations for sources used, including the tax code.

· A – F: Refer to the IRC, Subchapter N and summarize one of the code sections in Subpart A. Provide an example as to how the tax code would apply to a taxpayer.

Bradley Dellrie  

1 posts

Answer: Topic 7 DQ 2

The 900s section of the Internal Revenue Code (IRC) delve into tax laws associated with foreign transactions. I will be summarizing 26 U.S. Code § 906. Nonresident alien individuals and foreign corporations, which falls under Subchapter N, Subpart A. According to this IRC, any nonresident alien individual or foreign corporation that has transacted with the United States through business or trade is given a credit for that taxable year. This credit is the direct result of income, war profits, and excess profit taxes that were paid or accrued in the respective taxable year to foreign countries or United States possession, given that the income was generated in connection with business dealings taking part within the United States. There are also special rules that apply to this tax code. The first has to do with determination of allowable deductions outlined in Sections 873(a) and 882(c), as well as the above-mentioned credit. When calculating the aforementioned tax paid or accrued, amounts that are exempt include the tax paid or accrued which is imposed in connection with income that was generated from United States based sources, which would not be taxed by foreign countries or possessions unless it fell under either of either or the following two qualifying circumstances. First, if the nonresident alien is an actual resident or citizen of the foreign country or possession. Second, if the foreign corporation was actually created under the foreign country or possession’s law or is otherwise domiciled in that same foreign country or possession. There are additional special rules beyond this. In application of Section 904, a taxpayer’s taxable income receives this taxable treatment only, in that it is effectively connected to business within the United States. The mentioned credits granted by this section are not allowed against taxes that are the result of Section 871, being any income that is not generated in connection with United States business. The same rule applies for Section 881, being income of foreign corporations not generated in connection with the United States. The last rule states that no credits granted by this Section are able to be applied against taxes related to Section 884 (Cornell Law School, 2021).

Below is an example of how this would apply to a taxpayer. In the case that a nonresident alien decides to invest within the United States, their tax treatment is different than what it would be for a United States citizen. United States residents are subject to US taxes on what is called their “worldwide income”. For nonresident aliens, US taxes are only applied to their income that was generated and based in the United States. In a real example I dealt with recently, we had calculated dividend income withholding at 30% like normal, but after some research had to reduce the withholding amount to 5% to align with the difference in tax liability for that country. Fortunately, updating withholding rates is a quick fix if it is caught in time. That being said, understanding differences in tax treatment for nonresident aliens and foreign corporations is essential for proper tax reporting.

 

Anderson, K., Hulse, D., & Rupert, T. (2020). Pearson's Federal Taxation 2020 Corporations, Partnerships, Estates, and Trusts. Retrieved from https://etext-ise.pearson.com/courses/5948317/products/147974/pages/1?locale=&platformId=1030&isTpi=Y

Cornell Law School. (2021). 26 U.S. Code § 906 - nonresident alien individuals and foreign corporations. Legal Information Institute. https://www.law.cornell.edu/uscode/text/26/906.

 

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