An IRS audit uncovered additional taxes due for your client. Your client agreed to pay the
additional taxes plus the negligence penalty. Does this penalty apply to the total additional taxes
that your client owes? Explain

Topic 2

Review the, “What would you do in this situation?” presented on pages 15–25 of
your text. Would you try this scheme for increasing your profits? If so, would you
escape the scope of Sec. 7206?

After working eight years for a large CPA firm, you begin your practice as a sole
practitioner CPA. Your practice is not as profitable as you had expected, and you
consider how you might attract additional clients. One idea is to obtain for your clients
larger refunds than they anticipate. Your reputation for knowing tax-saving tips might
grow, and your profits might increase. You think further and decide that maybe you could
claim itemized deductions for charitable contributions that actually were

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not made and
for business expenses that actually were not paid. You are aware of Sec. 7206, regarding
false and fraudulent statements but think that you can avoid the “as to any material
matter” stipulation by keeping the deduction overstatements relatively insubstantial.
Would you try this scheme for increasing your profits? If so, would you escape the scope
of Sec. 7206? What ramifications might these deeds have on your standing as a CPA
under the AICPA’s Statements on Standards for Tax Services and Code of Professional
Conduct?

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