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Deductions Situations Addressed

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There is a significant amount of gray area when interpreting tax regulations. There are several resources available to assist tax preparers in addressing these issues, such as the AICPA's "Statements on Standards for Tax Services."

You are asked by a new client to include an unsubstantiated amount as a deduction that will make a significant impact on the client's tax liability.

How would you address the situation?

Would you address the situation differently if your manager insisted that you include the amount?

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Solution Summary

This solution discusses unsubstantiated income tax deductions. A comprehensive discussion is provided.

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This falls under tax preparer due diligence. This is an area that is regulated by both the AICPA and the IRS. Circular 230 (IRS) covers due diligence in its entirety. Basically, the tax preparer must be aware and thoroughly understand the tax laws surrounding the types of deductions being used. Due diligence is then used in determining if the records provided to the tax preparer are accurate representations, and if the documents provided to substantiate the deduction by the taxpayer do not appear ...

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