FederallvTaxlvResearch,lv12thlvEditio Pagelv1
n
ThelvsolutionslvtolvthelvresearchlvcaseslvarelvvalidlvaslvoflvFebruarylv2020.lvItlvislvlikelylvthatlvtherelvwilll
belvchangeslvinlvthelvcode,lvregulations,lvadministrativelvpronouncements,lvandlvcaselvlawlvafterlvthislv
v
manuallvislvpublished.lvFurther,lvitlvislvlikelylvthatlvthelvserviceslvavailablelvtolvthelvstudentslvwilllvnotlvb
elvidenticallvtolvthoselvavailablelvtolvthelvauthorslvoflvthislvmanual.lvAlllvpossiblelvcitationslvarelvnotlvpro
vided;lvonlylvalvsamplelvoflvthelvcitationslvmostlvlikelylvprovidedlvbylvstudentslvislvpresented.lvConseque
ntly,lvthelvstudents‘lvresponseslvmaylvvarylvfromlvthoselvlistedlvforlveachlvquestion.
Chapterlv1
Note:lvForlvthelvfollowinglvcases,lvstudentslvmaylvpresentlvotherlvpositions,lvwhichlvcouldlvbelvconsid
eredlvethicallylvcorrect.lvThelvanswerslvpresentedlvbelowlvarelvthelvviewslvoflvthelvauthorslvandlvarelvpre
sentedlvaslvalvbasislvtolvjudgelvalvstudent‘slvethicallvconclusion:
1-1
AICPAlvCodelvoflvProfessionallvCon
ductlvETlv§lv1.200.001:lvIndependence
ETlv§lv1.100.001:lvObjectivitylvandlvIntegrity
ETlv§lv1.700.001:lvConfidentiallvClientlvInformationl
vETlv§lv1.400.001:lvActslvDiscreditable
SSTSl v l v No.lv1:lvTaxlvReturnlvPositions
ItlvislvnotlvadvisablelvforlvAhilvCorporationlvtolvcompletelvthelvtransaction.lvUnderlvETlv
§lv1.100.001,lvalllvprofessionallvserviceslvbylvalvCPAlvshouldlvbelvrenderedlvwithlvobjec
tivitylvandlvintegrity,lvavoidinglvanylvpotentiallvorlvexistinglvconflictslvoflvinterest.lvTh
elvCPAlvmustlvexerciselvduelvprofessionallvcarelvinlvthelvperformancelvoflvalllvprofession
allvserviceslvandlvcomplylvwithlvalllvstandardslvpromulgatedlvbylvthelvbodieslvdesignate
dlvbylvthelvAICPAlvCouncil.lvUnderlvETlv§1.400.001,lvalvCPAlvmustlvnotlvcommitlvanlv
actlvthatlvislvdiscreditablelvtolvthelvprofession.lvUnderlvthelvStatementslvoflvStandardslvf
orlvTax
,FederallvTaxlvResearch,lv12thlvEditio Pagelv2
n
Serviceslv(SSTS),lvalvCPAlvshouldlvhavelvalvgood-
faithlvbelieflvthatlvalvrecommendedlvpositionlvhaslvalvrealisticlvpossibilitylvoflvbeinglvs
ustainedlviflvchallenged.
ThelvCPAlvmustlvuselvjudgmentlvthatlvreflectslvprofessionallvcompetencelvandlvserveslv
thelvclient‘slvneeds.lvWrittenlvcommunicationlvshouldlvbelvgivenlvtolvthelvclientlvinlvimp
ortant,lvunusual,lvorlvcomplicatedlvtransactions.lvThelvCPAlvshouldlvadviselvthelvclientl
voflvsuchlvriskslvaslvinlvthelvinstantlvcase.lvWherelvthelvtaxpayerlvinsistslvonlvthelvspecificlv
position,lvthelvCPAlvshouldlvnotlvcontinuelvwithlvthelvengagementlvaslvthelvtaxlvreturnlv
positionlvislvexploitativelvandlvfrivolous.
1-2.
AICPAlvCodelvoflvProfessionallvCondu
ctl v ETlv§lv1.100.001:lvObjectivitylvandlvInte
grity
SSTSl v No.lv1:lvTaxlvReturnlvPositions;lvNo.lv6:lvKnowledgelvoflvError:lvReturnlvPrep
arationlvandlvAdministrativelvProceedings
AlvCPAlvmustlvcomplylvwithlvalllvstandardslvpromulgatedlvbylvbodieslvdesignatedlvbylv
thelvAICPAlvCouncillvandlvconformlvtolvgenerallylvacceptedlvaccountinglvprinciples.lv
UnderlvETlv§lv1.100.001,lvalllvprofessionallvserviceslvbylvalvCPAlvshouldlvbelvrenderedl
vwithlvobjectivitylvandlvintegrity,lvavoidinglvanylvpotentiallvorlvexistinglvconflictslvoflvin
terest.lvInlvaddition,lvalvCPAlvshouldlvneitherlvknowinglylvmisrepresentlvfactslvnorlvsub
ordinatelvhislvorlvherlvjudgmentlvtolvthatlvoflvotherslvinlvrenderinglvanylvprofessionallvse
rvices.
UnderlvthelvStatementslvoflvStandardslvforlvTaxlvServiceslv(SSTS),lvalvCPAlvshouldlvha
velvalvgood-
faithlvbelieflvthatlvalvrecommendedlvpositionlvhaslvalvrealisticlvpossibilitylvoflvbeinglvsu
stainedlviflvchallenged.lvInlvthelvinstantlvcase,lvthelvCPAlvmustlvnotifylvandlvadviselvthel
vclientlvpromptlylvuponlvhislvorlvherlvknowledgelvoflvalvpriorlvorlvcurrentlvtaxlvreturnlverr
or(s)lvthatlvhaslvalvsignificantlveffectlvuponlvthelvtaxpayer‘slvliability.lvThelvclientlvmust
,FederallvTaxlvResearch,lv12thlvEditio Pagelv3
n
lvbelvnotifiedlvandlvadvisedlveitherlvorallylvorlvinlvwriting.lvOncelvrentallvpriceslvoflvthelv
currentlvarealvhavelvbeenlvverifiedlvandlvcomparedlvagainstlvthelvamountlvpaidlvbylvHa
ddocklvCorporation,lvthelvCPAlvshouldlvtakelvthelvappropriatelvactions.lvThelvCPAlvsh
ould
, FederallvTaxlvResearch,lv12thlvEditio Pagelv4
n
considerlvwhetherlvtolvproceedlvwithlvthelvpreparationlvoflvthelvcurrentlvyear‘slvreturnlv
orlvresignlvfromlvthelvengagementlvcompletely.lvHelvorlvshelvshouldlvnotlvsignlvthelvtaxlv
returnlvuntillvthelvappropriatelvmeasureslvhavelvbeenlvtakenlvtolvcorrectlvthelverrorslvm
adelvinlvthelvcurrentlvandlvpriorlvreturns.
1-3.
AICPAlvCodelvoflvProfessionallvCondu
ctl v ETlv§lv1.100.001:lvObjectivitylvandlvInte
grity
ETlv§lv1.700.001:lvConfidentiallvClientlvInformation
UnderlvETlv§lv1.700.001lvoflvthelvAICPAlvCodelvoflvProfessionallvConduct,lvalvCPAlvinl
vthelvpracticelvoflvpubliclvaccountinglvmustlvnotlvdiscloselvconfidentiallvclientlvdatalvwi
thoutlvspecificlvconsentlvoflvthelvclient.lvTherelvarelvexceptionslvthatlvexistlvforlvRulelv3
01.lvUnderlvETlv§lv1.100.001,lvalllvprofessionallvserviceslvbylvalvCPAlvshouldlvbelvrend
eredlvwithlvobjectivitylvandlvintegrity,lvavoidinglvanylvpotentiallvorlvexistinglvconflictslv
oflvinterest.lvInlvaddition,lvalvCPAlvshouldlvneitherlvknowinglylvmisrepresentlvfactslvno
rlvsubordinatelvhislvorlvherlvjudgmentlvtolvthatlvoflvotherslvinlvrenderinglvanylvprofession
allvservices.
Inlvthelvinstantlvcase,lvthelvCPAlvshouldlvnotifylvthelvclient,lvSharklvCorporation,lvoflvt
helvmisrepresentationlvoflvfacts.lvIflvthelvclientlvislvnotlvwillinglvtolvnotifylvthelvbuyerlv
oflvthelvbuilding‘slvcurrentlvstructurallvcondition,lvthelvCPAlvshouldlvresignlvfromlvthe
lv engagement.lvIflvthelvCPAlvhaslvalreadylvtoldlvthelvotherlvsidelvthatlvthelvbuildinglvwasl
vOKlvwhenlvhelvorlvshelvlearnslvoflvitslvstatus,lvthelvCPAlvshouldlvresignlvfromlvthelveng
agementlvwithlvSharklvCorporation.
1-4.
AICPAlvCodelvoflvProfessionallvCondu
ctl v ETlv§lv1.100.001:lvObjectivitylvandlvInte
gritylvETlv§lv1.300.001lvGenerallvStandard
s
ETlv§lv1.700.001:lvConfidentiallvClientlvInformation
n
ThelvsolutionslvtolvthelvresearchlvcaseslvarelvvalidlvaslvoflvFebruarylv2020.lvItlvislvlikelylvthatlvtherelvwilll
belvchangeslvinlvthelvcode,lvregulations,lvadministrativelvpronouncements,lvandlvcaselvlawlvafterlvthislv
v
manuallvislvpublished.lvFurther,lvitlvislvlikelylvthatlvthelvserviceslvavailablelvtolvthelvstudentslvwilllvnotlvb
elvidenticallvtolvthoselvavailablelvtolvthelvauthorslvoflvthislvmanual.lvAlllvpossiblelvcitationslvarelvnotlvpro
vided;lvonlylvalvsamplelvoflvthelvcitationslvmostlvlikelylvprovidedlvbylvstudentslvislvpresented.lvConseque
ntly,lvthelvstudents‘lvresponseslvmaylvvarylvfromlvthoselvlistedlvforlveachlvquestion.
Chapterlv1
Note:lvForlvthelvfollowinglvcases,lvstudentslvmaylvpresentlvotherlvpositions,lvwhichlvcouldlvbelvconsid
eredlvethicallylvcorrect.lvThelvanswerslvpresentedlvbelowlvarelvthelvviewslvoflvthelvauthorslvandlvarelvpre
sentedlvaslvalvbasislvtolvjudgelvalvstudent‘slvethicallvconclusion:
1-1
AICPAlvCodelvoflvProfessionallvCon
ductlvETlv§lv1.200.001:lvIndependence
ETlv§lv1.100.001:lvObjectivitylvandlvIntegrity
ETlv§lv1.700.001:lvConfidentiallvClientlvInformationl
vETlv§lv1.400.001:lvActslvDiscreditable
SSTSl v l v No.lv1:lvTaxlvReturnlvPositions
ItlvislvnotlvadvisablelvforlvAhilvCorporationlvtolvcompletelvthelvtransaction.lvUnderlvETlv
§lv1.100.001,lvalllvprofessionallvserviceslvbylvalvCPAlvshouldlvbelvrenderedlvwithlvobjec
tivitylvandlvintegrity,lvavoidinglvanylvpotentiallvorlvexistinglvconflictslvoflvinterest.lvTh
elvCPAlvmustlvexerciselvduelvprofessionallvcarelvinlvthelvperformancelvoflvalllvprofession
allvserviceslvandlvcomplylvwithlvalllvstandardslvpromulgatedlvbylvthelvbodieslvdesignate
dlvbylvthelvAICPAlvCouncil.lvUnderlvETlv§1.400.001,lvalvCPAlvmustlvnotlvcommitlvanlv
actlvthatlvislvdiscreditablelvtolvthelvprofession.lvUnderlvthelvStatementslvoflvStandardslvf
orlvTax
,FederallvTaxlvResearch,lv12thlvEditio Pagelv2
n
Serviceslv(SSTS),lvalvCPAlvshouldlvhavelvalvgood-
faithlvbelieflvthatlvalvrecommendedlvpositionlvhaslvalvrealisticlvpossibilitylvoflvbeinglvs
ustainedlviflvchallenged.
ThelvCPAlvmustlvuselvjudgmentlvthatlvreflectslvprofessionallvcompetencelvandlvserveslv
thelvclient‘slvneeds.lvWrittenlvcommunicationlvshouldlvbelvgivenlvtolvthelvclientlvinlvimp
ortant,lvunusual,lvorlvcomplicatedlvtransactions.lvThelvCPAlvshouldlvadviselvthelvclientl
voflvsuchlvriskslvaslvinlvthelvinstantlvcase.lvWherelvthelvtaxpayerlvinsistslvonlvthelvspecificlv
position,lvthelvCPAlvshouldlvnotlvcontinuelvwithlvthelvengagementlvaslvthelvtaxlvreturnlv
positionlvislvexploitativelvandlvfrivolous.
1-2.
AICPAlvCodelvoflvProfessionallvCondu
ctl v ETlv§lv1.100.001:lvObjectivitylvandlvInte
grity
SSTSl v No.lv1:lvTaxlvReturnlvPositions;lvNo.lv6:lvKnowledgelvoflvError:lvReturnlvPrep
arationlvandlvAdministrativelvProceedings
AlvCPAlvmustlvcomplylvwithlvalllvstandardslvpromulgatedlvbylvbodieslvdesignatedlvbylv
thelvAICPAlvCouncillvandlvconformlvtolvgenerallylvacceptedlvaccountinglvprinciples.lv
UnderlvETlv§lv1.100.001,lvalllvprofessionallvserviceslvbylvalvCPAlvshouldlvbelvrenderedl
vwithlvobjectivitylvandlvintegrity,lvavoidinglvanylvpotentiallvorlvexistinglvconflictslvoflvin
terest.lvInlvaddition,lvalvCPAlvshouldlvneitherlvknowinglylvmisrepresentlvfactslvnorlvsub
ordinatelvhislvorlvherlvjudgmentlvtolvthatlvoflvotherslvinlvrenderinglvanylvprofessionallvse
rvices.
UnderlvthelvStatementslvoflvStandardslvforlvTaxlvServiceslv(SSTS),lvalvCPAlvshouldlvha
velvalvgood-
faithlvbelieflvthatlvalvrecommendedlvpositionlvhaslvalvrealisticlvpossibilitylvoflvbeinglvsu
stainedlviflvchallenged.lvInlvthelvinstantlvcase,lvthelvCPAlvmustlvnotifylvandlvadviselvthel
vclientlvpromptlylvuponlvhislvorlvherlvknowledgelvoflvalvpriorlvorlvcurrentlvtaxlvreturnlverr
or(s)lvthatlvhaslvalvsignificantlveffectlvuponlvthelvtaxpayer‘slvliability.lvThelvclientlvmust
,FederallvTaxlvResearch,lv12thlvEditio Pagelv3
n
lvbelvnotifiedlvandlvadvisedlveitherlvorallylvorlvinlvwriting.lvOncelvrentallvpriceslvoflvthelv
currentlvarealvhavelvbeenlvverifiedlvandlvcomparedlvagainstlvthelvamountlvpaidlvbylvHa
ddocklvCorporation,lvthelvCPAlvshouldlvtakelvthelvappropriatelvactions.lvThelvCPAlvsh
ould
, FederallvTaxlvResearch,lv12thlvEditio Pagelv4
n
considerlvwhetherlvtolvproceedlvwithlvthelvpreparationlvoflvthelvcurrentlvyear‘slvreturnlv
orlvresignlvfromlvthelvengagementlvcompletely.lvHelvorlvshelvshouldlvnotlvsignlvthelvtaxlv
returnlvuntillvthelvappropriatelvmeasureslvhavelvbeenlvtakenlvtolvcorrectlvthelverrorslvm
adelvinlvthelvcurrentlvandlvpriorlvreturns.
1-3.
AICPAlvCodelvoflvProfessionallvCondu
ctl v ETlv§lv1.100.001:lvObjectivitylvandlvInte
grity
ETlv§lv1.700.001:lvConfidentiallvClientlvInformation
UnderlvETlv§lv1.700.001lvoflvthelvAICPAlvCodelvoflvProfessionallvConduct,lvalvCPAlvinl
vthelvpracticelvoflvpubliclvaccountinglvmustlvnotlvdiscloselvconfidentiallvclientlvdatalvwi
thoutlvspecificlvconsentlvoflvthelvclient.lvTherelvarelvexceptionslvthatlvexistlvforlvRulelv3
01.lvUnderlvETlv§lv1.100.001,lvalllvprofessionallvserviceslvbylvalvCPAlvshouldlvbelvrend
eredlvwithlvobjectivitylvandlvintegrity,lvavoidinglvanylvpotentiallvorlvexistinglvconflictslv
oflvinterest.lvInlvaddition,lvalvCPAlvshouldlvneitherlvknowinglylvmisrepresentlvfactslvno
rlvsubordinatelvhislvorlvherlvjudgmentlvtolvthatlvoflvotherslvinlvrenderinglvanylvprofession
allvservices.
Inlvthelvinstantlvcase,lvthelvCPAlvshouldlvnotifylvthelvclient,lvSharklvCorporation,lvoflvt
helvmisrepresentationlvoflvfacts.lvIflvthelvclientlvislvnotlvwillinglvtolvnotifylvthelvbuyerlv
oflvthelvbuilding‘slvcurrentlvstructurallvcondition,lvthelvCPAlvshouldlvresignlvfromlvthe
lv engagement.lvIflvthelvCPAlvhaslvalreadylvtoldlvthelvotherlvsidelvthatlvthelvbuildinglvwasl
vOKlvwhenlvhelvorlvshelvlearnslvoflvitslvstatus,lvthelvCPAlvshouldlvresignlvfromlvthelveng
agementlvwithlvSharklvCorporation.
1-4.
AICPAlvCodelvoflvProfessionallvCondu
ctl v ETlv§lv1.100.001:lvObjectivitylvandlvInte
gritylvETlv§lv1.300.001lvGenerallvStandard
s
ETlv§lv1.700.001:lvConfidentiallvClientlvInformation
