Question Description
TAX 700 Final Project II Guidelines and Rubric
Response Memo to the IRS
Overview
Researching
special tax issues for clients is important these days, as the Internal
Revenue Service (IRS) can challenge every aspect of difficult tax
stances. Certified Public Accountants (CPAs) must strive to navigate
their way through the ever-complicated tax code and back up every stance
they take with facts, relevant federal statutory tax legislation, and
case law to create a strong argument. This course has provided you with
real-life examples of IRS adjustments and has given you the opportunity
to respond and defend your client.
The treatment of per diem expenses
on tax returns has become a trending issue for the IRS in regard to
combining them with lodging, not including them as wages when the
assignment is greater than one year, and even not adding back the meals
and entertainment portion as part of a tax adjustment. This is a
real-life topic that has affected many companies over the past several
years, and you will have the ability to defend it just as other CPAs
have done for their clients.
Imagine that you are a CPA working for
an accounting firm. Your client is a Fortune 500 public company that has
revenues exceeding $10 billion. It is a fast-growing company that has
engaged your firm to handle all tax compliance and consulting. The
client has recently received notification from the IRS, and they have
determined that they will be under audit for the prior tax year. The
client contacts you to help them through this process. While meeting
with the IRS to understand what they need for their audit, you provided
the IRS with your client s trial balances, recent tax return work
papers, and the tax returns themselves.
After further review of those
documents, the IRS provided your client with a Notice of Proposed
Adjustment (NOPA) related to per diem expenses that the client has been
providing to their employees when they travel for business. The per
diems were for the combined lodging and meal expenses. The IRS is
recommending that these per diems are nondeductible at a rate of 50
percent. The adjustment they have proposed is $5 million. While
discussing the issue with your client, you learn that they have
accounted for per diem expenses the same way for the past several years
in their tax returns. You estimate that the fees associated with your
services will be $250,000. This fee includes defending your client
before the IRS, drafting a response plan, preparing a NOPA response, and
defending your client through an appeal.
In Final Project I, you
drafted a plan for how your client should respond to the NOPA. Your plan
explained the client s current situation, determined why they should
appeal to the IRS, and advised them on how to properly document the tax
uncertainty on their public disclosures. You also recommended measures
that your client can take to correct the tax issue related to per diems
for avoiding future audits.
For Final Project II, you must prepare a
memo to the IRS in response to the NOPA to initiate the appeal. Your
response will discuss the issue associated with the