Write a response to each of the following questions between 260
to 350 words from Ethics in Accounting: A Decision-Making
You are a licensed CPA who is a member of both the AICPA and the
Oregon Society of CPAs. You work in the Tax Compliance Department
of a major publicly traded supermarket chain. The company is
considering whether to claim a deduction for food donated to
various homeless shelters. According to Internal Revenue Code
Section 170(b), “in the case of a corporation, the total deductions
under subsection (a) for any taxable year shall not exceed 10
percent of the taxpayer’s taxable income,” computed without regard
to certain deductions. Based on your calculations, your employer
has already exceeded this limit and cannot claim any deduction for
the donated food if it considers the donation to be a charitable
contribution. However, this donation earns the company positive
news coverage and publicity. As a result, several of your
colleagues believe that a full deduction may be claimed under the
Tax Code’s provisions that allow ordinary and necessary business
expenses, such as marketing and advertising, to be claimed.
Your supervisor has asked you to assume that this deduction will
save your company $1 million in taxes if it not disallowed by the
IRS. You also have been asked to assume that the chance of this
item being challenged by the IRS if the company places it on its
tax return is 1 in 10, and the probability of the company
successfully persuading the IRS about the correctness of its tax
position is about 2 in 10. If challenged and your company fails to
persuade the IRS that your claimed deduction is allowable, the
penalty will be $10 million, on average. Your client is not willing
to call attention to this tax position by making any special tax
return disclosures.
Are you personally obligated to abide by the AICPA’s Statement
of Standards for Tax Services, even though you do not work in
public practice? Assume that you are not bound by the AICPA
Standards. Would it be a rational economic decision for your client
to claim these food donations as fully deductible under the Tax
Code’s ordinary and necessary rules? Assume that you are bound by
the AICPA Standards. Can you advise your client to claim these food
donations as an ordinary and necessary expense? Could your client
claim this deduction if it was willing to make explicit disclosures
about this deduction and attach that disclosure to its tax

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