Question

In: Accounting

Brenda Sells sent the tax return that she prepared for the president of Purple Industries, Inc.,...

Brenda Sells sent the tax return that she prepared for the president of Purple Industries, Inc., Harry Kohn, to Vincent Dim, the manager of the tax department at her accounting firm. Dim asked Sells to come to his office at 9 a.m. on Friday, April 12, 2016. Sells was not sure why Dim wanted to speak to her. The only reason she could come up with was the tax return for Kohn. “Brenda, come in,” Vincent said. “Thank you, Vincent,” Brenda responded. “Do you know why I asked to see you?” “I’m not sure. Does it have something to do with the tax return for Mr. Kohn?” asked Brenda. “That’s right,” answered Vincent. “Is there a problem?” Brenda asked. “I just spoke with Kohn. I told him that you want to report his winnings from the lottery. He was incensed.” “Why?” Brenda asked. “You and I both know that the tax law is quite clear on this matter. When a taxpayer wins money by playing the lottery, then that amount must be reported as revenue. The taxpayer can offset lottery gains with lottery losses, if those are supportable. Of course, the losses cannot be higher than the amount of the gains. In the case of Mr. Kohn, the losses exceed the gains, so there is no net tax effect. I don’t see the problem.” “You’re missing the basic point that the deduction for losses is only available if you itemize deductions,” Vincent said. “Kohn is not doing that. He’s using the standard deduction.” Brenda realized she had blown it by not knowing that. Brenda didn’t know what to say. Vincent seemed to be telling her the lottery amounts shouldn’t be reported. But that was against the law. She asked, “Are you telling me to forget about the lottery amounts on Mr. Kohn’s tax return?” “I want you to go back to your office and think carefully about the situation. Consider that this is a one-time request and we value our staff members who are willing to be flexible in such situations. And, I'll tell you, other staff in the same situation have been loyal to the firm. Let’s meet again in my office tomorrow at 9 a.m.” Brenda complies and the return is audited and found to have under-reported income.

Who is likely to take the blame for the error? Who is the most important stakeholder in a tax return preparation?

Vincent Dim is rationalizing his behavior with which GVV construct?

Who is the most important stakeholder in a tax return preparation?

Solutions

Expert Solution

As per given case

Determine the Facts

-Brenda Sells prepared a tax return for Harry Kohn, president of Purple Industries, and sent it to her manager Vincent Dim

-Dim asks to see Brenda in his office to discuss the tax return

-Dim tells Brenda that he has spoken with Mr. Kohn and that he is “incensed” that she is reporting his winnings from the lottery.

-Brenda sees no problem in it given that his losses exceeded his gains so there isn’t a net tax effect -Dim tells Brenda that Kohn is one of their largest clients and that they can’t afford to losehim. Pretty much saying that she shouldn’t and that is against the law.

-Gives her a day to pretty much decide.

Identify Stakeholders

-Brenda Sells

-Harry Kohn and Purple Industries

-Vincent Dim-Where Dim and Sells work at.

In case if you see the Entire case it is very clear that Tax consultant Brenda Sells has been very clear that deduction for losses is only available if you itemize deductions so it means she has been never violated any rule however if we try to find out accountablity then i can say if Tax payer force to deviate or hide the correct figure of income is more responsile then Tax consultant who helps to complete the process. however somewhere Brenda is also important stakeholder as she can confess and tell that this is illegal and i cant help you for this. \

In terms of important Stake holder

-Brenda Sells - Tax Consultant

-Harry Kohn and Purple Industries - Tax Payer

-Vincent Dim-Where Dim and Sells work at. - Accountant of Tax Payer


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