TAX 700 Final Project II Guidelines and Rubric Response Memo to the IRS
TAX 700 Final Project II Guidelines and Rubric
Response Memo to the IRS
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