As Jonathan Godwin packed his briefcase on Friday, March 15, he could never remember being so glad to see a weekend. As a senior tax manager with a major accounting firm, Goldberg and Smithfield, on the fast track for partnership, he was worried that the events of the week could prove to be detrimental to his career. Six months ago, the senior partners had rewarded Jonathan by asking him to be the tax manager on Aroma Inc., a very important client of the firm in terms of both prestige and fees. Jonathan had worked hard since then, ensuring that his client received impeccable service, and he had managed to build a good working relationship with Robert, the C.E.O. of Aroma Inc. In fact, Robert was so impressed with Jonathan that he recommended him to his brother, Dr. Scott, a general medical practitioner. As a favor to Robert, Jonathan agreed that Goldberg and Smithfield would prepare Dr. Scott's tax return. This week a junior tax person had prepared Dr. Scott's tax return. When it came across Jonathan's desk for review today, he was surprised to find that, although Dr. Scott's gross billings were $840,000, his net income for tax purposes from his medical practice was only $57,000. He discussed this with the tax junior, who said he had noted this also but was not concerned, as every tax return prepared by the firm is stamped with the disclaimer, "We have prepared the return from information provided to us by the client. We have not audited or otherwise attempted to verify its accuracy." On closer review, Jonathan discovered that the following items, among others, had been deducted by Dr. Scott in arriving at net income: $25,000 for meals and entertainment. Jonathan felt that this was excessive and probably had not been incurred to earn income, given the nature of Dr. Scott's practice; Dry-cleaning bills for shirts, suits, dresses, sweaters, and so on. Jonathan believed these to be family dry-cleaning bills that were being paid by the practice; Wages of $500 per week paid to Dr. Scott's twelve-year-old son. Jonathan telephoned Dr. Scott and had his suspicions confirmed. When Jonathan asked Dr. Scott to review the expenses and remove all that was personal, Dr. Scott became very defensive. He told Jonathan that he had been deducting these items for years, and his previous accountant had not objected. In fact, it was his previous accountant who had suggested he pay his son a salary as an income-splitting measure. The telephone conversation ended abruptly when Dr. Scott was paged for an emergency but not before he threatened to inform his brother that the accounting firm he thought so highly of was behind the times on the latest tax planning techniques. Jonathan was annoyed with himself for having agreed to prepare Dr. Scott's tax return in the first place. He was afraid of pushing Dr. Scott too far and losing Aroma, Inc. as a client as a result. He could not anticipate what Robert's reaction to the situation would be. Jonathan was glad to have the weekend to think this over. Just as Jonathan was leaving the office, the tax senior on the Aroma, Inc. account informed him that the deadline had been missed for objecting to a reassessment, requiring Aroma Inc. to pay an additional $1,500,000 in taxes. The deadline was Wednesday, March 13. The senior said he was able to contact a friend of his at the Tax Department, and the friend had agreed that if the Notice of Objection were dated March 13, properly signed, and appeared on his desk Monday, March 18, he would process it. Jonathan left his office with some major decisions to make over the weekend.

Questions

1. Evaluate this case based on the six pillars of character.

2. Evaluate this case based on the various ethical philosophies.

3. Evaluate the case based on the G.V.V. framework's four steps.

4. What should Jonathan Godwin do in this situation?

5. Are there any AICPA professional code of conduct and ethics or IRS CIR 230 violations in this case?

6. How are you prepared to handle a similar situation, and what would you do and why?

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