Question

Martina advises her tax client, Breslin Baked Goods, to disclose a matter by attaching a special form to its corporate tax return. Breslin refuses and threatens to replace Martina with another CPA. Which statement best describes what Martina should do under the tax profession's ethics standards in this situation?

1. Consider whether to withdraw from the engagement and reevaluate the relationship.
2. Terminate the engagement and report Breslin to the IRS Office of Professional Responsibility.
3. Draft a memo for the files indicating that Breslin is a difficult client
4. File the return in the manner specified by the client (without the disclosure).

Answer 1

1. Correct. Martina should consider whether to continue the engagement and re-evaluate her relationship with Breslin.
2. Incorrect. While Martina may wish to terminate the engagement, she would not be required to report the client to the IRS.
3. Incorrect. This may be something Martina would do, but, in and of itself, it would not be sufficient.
4. Incorrect. Martina should not follow the client’s instructions when she knows the disclosure is required by section 6694.