Question

In preparing a client's current-year individual income tax return, a tax practitioner discovers an error in the prior year's return. Under the rules of practice, what should the tax practitioner do?

1) Amend the prior year's return to correct the error
2) Ignore the error and proceed with the current-year return
3) Inform the client about the error and advise them to consult with another tax practitioner
4) Report the error to the tax authorities

Answer 1

A tax practitioner should amend the prior year's return to correct the error and ensure accuracy when preparing the current-year return. However, informing the client and advising them to consult with another tax practitioner may be necessary in certain cases. Reporting the error to the tax authorities is not typically required unless there are serious violations involved.

Step-by-step explanation:

When a tax practitioner discovers an error in the prior year's return while preparing a client's current-year individual income tax return, they should amend the prior year's return to correct the error. This is done by filing an amended tax return, Form 1040X, with the tax authorities.

Informing the client about the error and advising them to consult with another tax practitioner may be necessary in some cases where the error is significant or complex and requires expert advice. However, the tax practitioner should always take the responsibility to correct the error and ensure the client's prior year's return is accurate.

Reporting the error to the tax authorities is not typically required unless the error involves intentional fraud or other serious violations.