Following is a question and answer transcript highlighting some of the frequent inquiries sent to the MACPA Professional Ethics Task Force. Responses to the inquiries have been tailored to specific questions presented and may not consider all of the unique circumstances that are part of an ethical inquiry. Attempt your own answers before reading the “unofficial” opinion of the Task Force.

Q. I recently obtained a new client who had not filed any tax returns for several years. Using client-supplied information, I quickly filed 2003 and 2004 sales tax returns. Now that I am preparing the 1120-S returns, I discovered that the sales information I was given was incorrect and therefore the sales tax returns underreported taxable sales. I have discussed this with my client. She doesn’t want to file amended sales tax returns. I am the one who prepared those returns! What is my ethical obligation since I know the returns are incorrect? What should I do about preparing the 1120-S returns? Am I in trouble?

A. Not yet.

You prepared the sales tax returns using data you believed true and correct. Therefore, you did not commit an ethical violation. It is the client’s obligation to file amended returns. You should prepare amended returns. Send these to your client, informing her, in writing, that the amended returns must be filed.

If you believe the balance of financial data is correct, you could complete the 1120-S returns (showing the correct sales tax liability).

The “not yet” part is that if your new client refuses to file the amended returns, you are now aware that she lacks integrity. Using your professional judgment, consider if you want this woman for a client or do you withdraw from this engagement?

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