Question

A CPA prepares a client's tax return containing business travel expenses without inquiring about the existence of documentation for the expenses. Which statement best describes the consequence of the CPA's lack of inquiry?a. The client will not be subject to a fraud penalty.b. The client will not owe an understatement penalty if the return is audited and the expenses disallowed.c. The CPA may be charged with preparing a fraudulent return.d. The CPA may be assessed a tax return preparer penalty.e. None of the above

Answer 1

d. The CPA may be assessed a tax return preparer penalty.

Step-by-step explanation:

A CPA is responsible for verification while preparing the tax return of a client, and accordingly the tax return is to be prepared reflecting all the true expenses, and incomes.

In this manner the CPA shall be careful that nothing is defaulted in the tax return. In the given instance the CPA did not verify the expense, whether actual or fraud, and allowed while preparing the tax return.

Accordingly, he shall be held liable for any mischief, and thus, he can be assessed as fr the tax return preparer penalty.