I need to write a tax memo for the following case:?
Lance delivered his Forms W?2, 1099, and other documentation to tax preparer Cindy. Cindy completed the return by that deadline, and without signing and reviewing the forms, Lance allowed Cindy to e-file it that day. The arrangement was that Cindy would receive the refund through a special bank account and write Lance a check for that amount, less her fee. When the refund came through about three weeks later, Cindy wrote Lance a check for $2,400, and all parties were happy. Lance gladly used Cindy to e-file the next year's return using the same procedures.
To his surprise, Lance received a letter from the IRS about 19 months later. The auditor had found that the return Cindy had e-filed vastly overstated deductions, created false dependency exemptions (using Social Security numbers that did not exist), and wrongly calculated the earned income tax credit. According to the audit report, the refund issued was $4,500?Cindy had pocketed the difference. Thus, the corrected tax liability meant that Lance now owed $7,000 in tax, before considering interest and penalties.
Lance contends that he relied on Cindy's expertise in the tax law and?
e-filing procedures. Consequently, there was reasonable cause for the underpayment of tax, and the IRS should waive the understatement and negligence penalties. The IRS has expressed sympathy for Lance's position, but it maintains that the penalty should stand. What do you think? Summarize your findings in a tax research memo. Write a cover letter and page of self-assessment.
This question was answered on: Oct 07, 2020
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