Taxing situations.

Author:Riber, Arthur
Position:Brief Article
 
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Discovering Errors in a Prior Year's Return

You discover that a tax return client privately sold a valuable painting during tax year 2003, resulting in a gain of $1,000,000. You did not know this when you prepared the 2003 tax return, and when you address the subject, the client says she "forgot" to inform you of the transaction. When you tell her the return should be amended to reflect the sale, she says she will not comply.

The AICPA's Statements on Standards for Tax Services (SSTSs) Statement No. 6, Knowledge of Error: Return Preparation addresses such circumstances, and requires CPAs to inform clients of the need to amend a prior year's return due to an error. While there is no requirement to do so in writing, it is considered to be a best practice. Statement No. 6 also asserts that if the CPA is asked to prepare the current year's tax return and the client has not taken action to correct an error in a prior year's return, the CPA should consider whether to withdraw from such preparation and think about terminating the...

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