Question

Flax, a sole proprietor, has been petitioned involuntarily into bankruptcy under the federal Bankruptcy Code's liquidation provisions. Simon Co., CPAs, has been appointed trustee of the bankruptcy estate. If Simon also wishes to act as the tax return preparer for the estate, which of the following statements is correct?

1) Simon can act as the tax return preparer for the estate without any restrictions.
2) Simon can act as the tax return preparer for the estate, but only with the approval of the bankruptcy court.
3) Simon cannot act as the tax return preparer for the estate.
4) Simon can act as the tax return preparer for the estate, but only if Flax gives written consent.

Answer 1

Simon Co., CPAs, appointed as the trustee of a bankruptcy estate, can act as the tax return preparer for the estate. Although obtaining the written consent of the sole proprietor Flax may be advisable to avoid any conflicts of interest, it is not an absolute requirement unless mandated by law or court order.

Step-by-step explanation:

The student's question relates to whether Simon Co., CPAs can act as the tax return preparer for a bankruptcy estate without the written consent of Flax, who is the sole proprietor that has been involuntarily petitioned into bankruptcy. Under standard professional ethics and bankruptcy law practices, a trustee, in this case, Simon Co., CPAs, can indeed prepare tax returns for the bankruptcy estate. However, it is essential that there is no conflict of interest and that the trustee's actions are in the best interest of the estate.

Therefore, obtaining Flax's written consent may be preferable, but it is not necessarily a requirement unless specified by the court or applicable local rules. The decision would be governed by applicable law and ethical rules, which often prioritize the estate's interests and the efficient administration of the estate without any conflicts of interest.