Ethics in taxation

Ethics Question 51. Brandon comes to a local CPA tax attorney’s office in need of assistance with his deceased grandmother’s estate. His loving deceased grandma, Alberta, a medical back office specialist/transcriber, had been a saver all her life and owned approximately $1.5 million in an investment portfolio of corporate stocks and municipal bonds. Brandon is relatively unsophisticated in estate taxes and accounting business matters. The tax attorney, who is a licensed CPA, agrees to handle the estate tax return for 22 percent of the estate’s total value. The normal charge for the tax attorney’s clients needing similar estate tax work is about 4 to 8 percent of the estate’s total value. Brandon agrees to the tax attorney’s 22 percent arrangement and signs the engagement letter with the tax attorney. The tax attorney then independently hires new CPA Frank Wells for $75,000 to compute Alberta’s estate taxes on IRS Form 706 and prepare other related Federal tax documents. To make fast cash for both himself and the tax attorney, not disclosed to Brandon, CPA Frank Wells sells the estate tax information to an outside third-party. CPA Frank Wells discovered that previous year tax returns contained errors regarding the gains on selling some of Alberta’s stock portfolio. No amended tax returns have been filed to correct the errors. Both Alberta and Brandon do not know about the CPA’s errors. They have not discovered the errors or received notices from the IRS (20 points) (a) Does CPA Frank Wells have any responsibilities to inform Brandon that he is being significantly overcharged by the tax attorney for his deceased grandma’s estate tax matters? (b) As a tax professional, discuss in detail the multiple potential ethics issues that exist with the above client situation. Note: For both letter parts, students are REQUIRED to reference and incorporate any and ALL applicable ethical rules and sources in their ethical response (i.e. Circular 230 Sections, AICPA Code of Professional Conduct Rules, AICPA SSTSs, etc.). Not doing so will result in significant deductions.

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