Textbook Problems Team AACC 497I: 15-61 Tax Strategy ProblemIf HPU wants to file a law suit against the IRS about the payment for $150,000, they should file in either the U.S. District Court or the U.S. Court of Federal Claims. However, they need tocapitalize the amount, pay the taxes due, and then receive a refund if they win the case. If they lose, they can pay any interest and penalties that may be due. The tax court allows for appeals, has judges that specialize in tax related issues, and is also not bound by previous decisions in the other court. The District Court will be involved only in the District that HPU is located and this court must follow any previous decisions made by U.S. Supreme Court. The federal court also follows upper court decisions in its decisions. So this court would follow in the ruling of the IRS.The tax court does not have to follow any other court rulings. Therefore, HPU should file claim in this court so they will get a better chance to win this case. I: 15-62The statement on standards for Tax Services, N0. 3 , which is set forth by the American Institute of Certified Public Accountants(AICPA) contains the standards that regards the obligation of members that examine and verify supporting information or consideration of information that is related to another taxpayer when preparing a taxpayer's return. According to Statement No. 3, a member may rely on, without verification, information furnished by the client or by third parties (AICPA, 2010). However, as per Statement No. 3, the CPA should verify the documentation of the charitable contributions do exist in this case because the information given by the taxpayer appears to be incorrect and incomplete. The member should refer to the previous year tax returns. Statement No. 3 requires that in the case of the tax laws and regulations with the deduction of an item like charitable contributions, the member should ask whether the conditions for the deduction have been met, which means that in regards to Mal Manley's assertion that he made charitable contribution for the previous year of $24,785 can be accepted at face value without requiring documentation.However, after making the decision to accept the contributions at face value, it is discovered that the IRS has performed an audit on Mal’s tax returns for the last two years. During this audit, 75% of the charitable contributions claimed were denied because they were not substantiated. With this new knowledge, the CPA must now require proper documentation be provided, such asreceipts, as the contributions can no longer be accepted at face value. It would also be in the CPA’s, and Mal’s, best interests, if the larger contribution for this tax year could be explained. Explanation may be necessary, as another audit should be expected, to verify why the charitable contributions for this year are much larger than the amounts claimed for previous years. The CPA has the responsibility to practice due diligence when preparing a taxpayer's tax return, and it is important that they receive the right documentation. The CPA should always request this information even if they do not think it is fraud and if the information is not given then the CPA should refuse to complete the taxpayer’s tax return until documentation is submitted.Reference:Pope, T. R., Anderson, K. E., Kramer, J. L., Bandy, D. D., Ford, N. A., Gardner, R. L., Joseph, R.J., Luna, L., Schadewald, M. S. (2011). Prentice hall's federal taxation 2011: Individuals (24th ed). Upper Saddle River, NJ: Pearson Education(AICPA 2012) Statements on Standards for tax Services. Retrieved July 8, 2012 from