Case study C: 1-62

A client, Mal Manley, fills out his client questionnaire for the previous year and on it provides information for the preparation of his individual income tax return. The IRS has never audited Mal’s returns. Mal reports that he made over 100 relatively small cash contributions totaling $24,785 to charitable organizations. In the last few years, Mal’s charitable contributions have averaged about $15,000 per year. For the previous year, Mal’s adjusted gross income was roughly $350,000, about a 10% increase from the year before. Required: Applying Statements on Standards for Tax Services No. 3, determine whether you can accept at face value Mal’s information concerning his charitable contributions. Now assume that the IRS recently audited Mal’s tax return for two years ago and denied 75% of that year’s charitable contribution deduction because the deduction was not substantiated. Assume also that Mal indicates that, in the previous year, he contributed $25,000 (instead of $24,785). How do these changes of fact affect your earlier decision? 

As a tax preparer and consultant, it is important to be able to interpret and apply IRS guidelines to situations you may encounter with a client. In this case study, your client, Mal Manley, has made several assertions regarding the amount of his charitable contributions. You must be able to use IRS guidelines, your professional skills and judgment, as well as your personal experiences, to evaluate the information that Manley has included in his client questionnaire.

In a 1-2 page informative essay, please respond to the following questions:

Evaluate client information based on Statements on Standards for Tax Services No. 3 in the first scenario.

Evaluate changes of fact regarding the client’s assertions of charitable contributions made provided in the second scenario in the case study.

How do your personal experiences influence the culture of your company workplace when working with client information which you may not be able to easily verify?

How do personal factors affect dealing with your tax clients and society at large? In regard to both theoretical and applied situations, evaluate the strengths and limitations of personal experiences.