You are the junior accountant at Mid-Size CPAs, a New Jersey based accounting and tax firm. The senior partner has just concluded a consultation with a potential new client. The
You are the junior accountant at Mid-Size CPAs, a New Jersey based accounting and tax firm. The senior partner has just concluded a consultation with a potential new client. The senior partner presents you with a fact pattern based on the consultation and asks you to create a memorandum that identifies and analyzes the potential new client's case. Because it is early on in the retention of this client, the senior partner is concerned more with identifying the issues than affirmatively concluding one way or another. Mrs. Smith came to the office for a consultation. Last month, Mrs. Smith's husband of many years disclosed that he was leaving her and that the family's finances were not as he had lead her to believe over all of these supposed happy years of marriage. Mr. Smith also revealed that the marriage was a sham and that he was immediately moving from their nice Bergen County home to an expensive apartment in New York City. Mr. Smith is a partner at a large New York City law firm and has been practicing tax law for two decades. Mrs. Smith is also an attorney at a large New York City law firm. However, Mrs. Smith had arranged to work a limited part time schedule to care for the couple's two children. Mrs. Smith worked one to two days per week and generally concentrated on small cases. In reality, her focus was more on raising the children than practicing law. When she was served with divorce papers, Mr. Smith revealed to Mrs. Smith that he had mortgaged the couple's assets significantly and that the family's last three vacations to Jamaica had been paid for on credit. He also revealed that, although he assured her otherwise, Mr. Smith never sent the IRS a check at tax time for the last five tax years so the family owed large amounts to the IRS. Mrs. Smith also revealed that, after speaking with a divorce lawyer and a different accountant, she filed an amended tax return that reported a previously unreported distribution from her pension account that Mr. Smith may have absconded with. Prior to filing the amended return, Mrs. Smith checked the family's bank account statement and saw that two estimated payments had been made from the couple's joint checking account for this tax year in question. The payments were $20,000 and $30,000. On the couple's originally filed return, there was $10,000 of estimated payments reported on the return. On Mr. Smith's amended tax return (conveniently filed by the same accountant and on the same day) reported $0 of estimated payments. Mr. Smith earned four times as much as Mrs. Smith in this year. On Mrs. Smith's amended tax return, she reported all $50,000 of estimated payments which were used to offset the additional tax resulting from the pension distribution. Mrs. Smith's amended return showed a refund of $15,000. Yesterday, Mrs. Smith received a Final Notice of Intent to Levy for the tax year in which she and Mr. Smith filed amended returns. The IRS did not credit any of the $50,000 of estimated payment but did accept that her tax liability increased as a result of filing the amended return. Mrs. Smith is very concerned about how the IRS failed to allocate the estimated tax payments to her and is wondering when she will be getting her refund. Without the $50,000 of allocated payments, Mrs. Smith will owe a considerable amount of money that she cannot pay. As a result the IRS sent the above referenced Final Notice of Intent to Levy. Mrs. Smith is quite concerned about that refund and is wondering if there is anything she can do with the Final Notice to get her refund. She doesn't think it's fair that she never got a chance to challenge this additional amount the IRS says she owes. Finally, Mrs. Smith was reluctant to discuss this, but she thinks her husband may have been keeping money in a Swiss bank account. This came out during the divorce but looking back, she's concerned that the couple's return may not have disclosed this and that she may be in trouble as a result. The senior partner, being extremely busy with “client development,” asks you to prepare a memorandum that identifies and analyzes the issues involved in Mrs. Smith's case.
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