Innocent spouse claims often land in tax court. Therefore, any CPA involved in these matters must assure that the tax returns involved are accurately prepared. But more action is required than merely deploying the rules from the tax section of CPA exam courses. When a marital conflict exists, an accountant should caution a spouse about the possibility of filing a separate return to avert any difficulty caused by the other spouse.

A recent case in Tax Court reveals the advice that would have benefited a wife. Unfortunately, she did not learn a vital fact found in CPA exam material. That is, filing a separate tax return when married is the only sure path to avoiding tax difficulty created by a spouse. Farzana Zaher is a dentist who was married in 2006. Her husband, Mohamed Zaher, owned a gas station. Mohamed sold his business in 2006 for a gain of $587,760. After paying off business debt, the remaining $315,000 of sales proceeds was deposited into a joint savings account. No estimated tax payments were made but the funds in the bank were reserved for 2006 taxes.

Following the couple’s separation in November 2007, Mohamed sent Farzana a draft of their joint 2006 tax return requesting her signature. This was how Farzana first learned that the tax return had not been filed by the due date. Mohamed urged Farzana to sign the return for immediate filing with the IRS. He also set an appointment for her with their accountant to discuss the return.

This is where the facts stray from the typical procedure described in CPA classes regarding tax returns. The initial step in tax work is identifying filing status. Given the facts in this matter, the accountant should not have assumed that Farzana file jointly with Mohamed. This was an obvious consideration when noticing the tax due of $63,379 on the joint return. Sound advice to Farzana would include a recommendation to file separately.

Filing a joint tax return is an irrevocable election. Once done, it cannot be undone. Farzana needed this information but did not receive it. As a result of filing the joint tax return, she was hit with the tax liability. She expected Mohamed to pay the tax because she no longer had access to proceeds from the gas station sale. But, Mohamed also no longer had the money. He gave it to various relatives in late 2007, claiming the transfers were loan repayments.

Mohamed did mention in an email to Farzana in January 2008 that he was seeking another accountant to redo the 2006 tax return. But the damage for Farzana was already done. As explained in CPA exam study, a married couple can amend separate tax returns by changing to joint filing, but not the other way around. Sure, a join tax return typically produces a lower tax calculation than the combination of two married filing separate returns. That’s irrelevant to Farzana, who simply needed to avoid joint tax liability with Mohamed relating to his income.

Fortunately, Farzana Zaher prevailed in Tax Court on her claim for innocent spouse relief. Despite this victory, an accountant helping her file a separate 2006 tax return would have saved her substantial attorney fees and years of grief in the court system.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

The percentage of professional liability claims against auditors that allege failure to identify fraud more than doubled between 2008 and 2010. As the frequency and severity of corporate fraud increases, more accountants must sharpen their fraud detection ability as they take CPA exam steps.

In fact, any type of engagement may require identification of fraud. Audit is not the only accounting service creating liability for noticing fraudulent and illegal acts. Among the 2010 claims of accountant failure to detect fraud, 52 percent entailed tax work or accounting services other than audit.

Therefore, even tax and compilation assignments should deploy fraud-detecting skills perfected during CPA exam study. Much fraud is identifiable during tax return and financial statement compilation projects. Accountants should not overlook potential fraud at companies engaging them for more limited services than audit.

Passing the CPA exam in any state proves only part of the aptitude needed for auditing. Detection of fraud and theft situations requires experience. The general tone of senior management is often indicative of the integrity applied to company operations that may create environments for fraud.

Fraud is sometimes a mismanagement cover-up instead of an overt scheme of personal enrichment. Lax management is just one indicator of potential fraudulent activity. Another contributor to fraud cases is aggressive management that pressures employees to mask financial irregularities out of fear about job elimination.

The majority of corporate fraud arises at companies lacking sufficient internal controls. Auditors look for situations where duties are not adequately segregated among employees. These cases present opportunities for employee theft. Specific details about any particular fraud scheme are then uncovered using audit techniques groomed by CPA exam preparation.

Some examples of the problems discovered by CPA auditors are negligent cash handling procedures, poor inventory control measures, and lack of adequate account reconciliation activity. When an accountant notices any of these circumstances, a professional responsibility exists to notify the client company. In fact, this is a best practice for all types of engagements – not just audits.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

The specific facts in any one of the cases could comprise a question for a sample CPA test. Because of the similarity, the pattern is easily revealed without specifically identifying any one of the unfortunate taxpayers.

Each trial centered on incentives provided by the same company in Hawaii for sales of solar water heaters. The Hawaiian business offered a program to buyers of the product to obtain “free” units by purchasing one for personal use and one for investment. The latter was installed at the location of a party that paid a monthly fee to the owner of the investment water heater.

Financing was provided plus a tax incentive commonly discussed in CPA study courses was utilized. That is, the investment cost was written off using a Section 179 expense deduction. In addition, an LLC was created that collected the monthly fees on the investment water heaters. This LLC then made the financing payments and remitted state excise taxes. The investors had no responsibility.

The entire process resulted in an after-tax cost for the personal water heater of essentially zero. In fact, the LLC generated a tax loss. All three taxpayers deducted the losses on their tax returns. However, this arrangement triggers factors described in CPA exam prep about material participation.

Any activity in which a taxpayer does not materially participate is defined as passive. Losses on passive activities are not eligible to offset earned income. The Tax Code identifies seven tests a taxpayer can apply to demonstrate material participation. Two of these tests are typically identified most prominently in study for CPA exam requirements. One is that material participation arises when a person contributes substantially all of the participation by all individuals in an activity. The second case of material participation transpires when someone spends more than 100 hours on the activity during the year and no other individuals spend more.

The Tax Court held that the taxpayers failed to meet the material participation requirements. They did not install any water heaters or collect any payments. Hence, the taxpayers could not claim substantially all of the participation. Moreover, they did not provide any records showing more than 100 hours of participation during any of the years. A combination of inactivity and inadequate records is certain to doom taxpayer claims of material participation, as the individuals in these Tax Court cases learned.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Opportunities for accountants are increasing due to several causes. First, large enterprises need to catch up on hiring that halted when the economy slid into recession. Moreover, corporations have created new demands of accountants to apply knowledge from CPA study that aids assessment of cautious optimism about the economy.

Second, a healthy economy spurs more activity for small businesses. More sales by large companies means they increase their purchases of materials and services from smaller operations. Then, as profits grow at small corporations, rising wages lead to more local purchases from shops and restaurants. Substantial accounting work is required for each of these phases.

Therefore, an optimistic outlook at large corporations also creates more demand for accountants to work at CPA practices serving small businesses. A variety of career opportunities await accountants while they are engaged in CPA exam review. Companies hire CPA candidates to work while they study to pass the examinations.

Indication that this process is underway is reinforced by several recent surveys. One of them – conducted by the American Institute of Certified Public Accountants – consisted of an inquiry in the first quarter of 2012 of 1,400 corporate CPAs. A greater number then those surveyed in the preceding quarter expect higher revenue, profit, and headcount. These results support the view that CPA courses are a path to fulfilling vital roles for accountants in a growing economy.

However, not quite as many survey respondents expressed economic optimism as did one year ago. This possibly indicates that some regions of the country are economically better than others. A few of the surveyed CPAs might have expected better improvement in their areas than is actually unfolding.

Uneven economic growth among various geographic areas is sometimes not a consequence of cyclical economic factors. Rather, declines in certain regions are often indicative of permanent demographic shifts.

A survey of corporate CFOs by accounting giant Deloitte also shows that economic optimism is strong but not universal. Over 60 percent of CFOs reported a more positive view of the economy than last year. But 15 percent still responded about feeling less optimistic.

This information gives accountants some important factors to consider. A CPA candidate seeking employment should carefully evaluate the economic stability of a particular region and the financial strength of a specific employer. Fortunately, a course for online CPA review allows studying for the CPA exam from any location.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

One of the more complicated tax matters in courses for CPA study is deductible travel expense. This applies to both self-employed independent contractors and individuals with unreimbursed travel expense related to a wage-paying job. A series of logical steps is applied to the details for a particular case when determining whether travel qualifies for a tax deduction.

Accountants find the definition of business travel as defined in a CPA course is any travel away from the general area of a person’s tax home that is substantially longer than an ordinary workday and necessitates sleep or rest to meet work demands while away from home. This comprises a lot of detail to digest. Some factors are more obvious than others.

The first element to recognize for answering CPA questions is that business travel entails more than driving someplace for a few hours and then returning home. Clearly, a business traveler must require staying somewhere – such as a hotel – for sleep or rest. This typically means overnight accommodations, but might include daytime rest while working at night. Either way, the work travel experience must encompass an entire day.

The other aspect of business travel discussed in CPA exam review is the definition of tax home. Tax-deductible travel only arises for trips away from a tax home. The tax home for someone is normally that person’s regular place of business. For an individual who lacks a regular place of business, a residence is the tax home. Sales people without local offices may also qualify to consider their residences as tax homes.

Unfortunately, the treatment of tax home is one of the tax issues that often receives subjective application of the facts and circumstances. The main point is that an individual has a tax home at any regular or main place of business – even one that is fairly distant from the place of residence. Consistent and permanent assignment to a single location causes recognition of that place as the tax home.

When no regular place of business is provided, CPAs apply IRS guidelines to determine if a residence qualifies as the tax home. A residence is eligible to declare as a person’s tax home when it is used for lodging while the individual is working in the vicinity of the residence and living expenses at the residence are duplicated by having to travel away from that home. In addition, the taxpayer should have frequent personal use of the residence or have family living there. When the conditions are met to claim a residence as a tax home, travel for work away from that location qualifies as business travel.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

A recent case before the Tax Court provides a scenario similar to one that could appear on a sample CPA test. The taxpayer in the matter was Graciela Helguero-Balcells, an assistant professor at Lynn University. Balcells has doctorate degrees in global and international education as well as Spanish literature.

She traveled extensively and claimed the costs as tax deductions. A CPA course review covers the conditions under which employees may deduct unreimbursed expenses. Travel expense for business is certainly one of the tax deduction categories. However, a taxpayer is not eligible to deduct the cost for travel that is primarily personal in nature.

Any business activity pursued during primarily personal travel does comprise a class of employee expense. For example, attending a conference may qualify. During part of her 71 travel days to Madrid, Balcells attended a symposium. She did not substantiate the duration of this business event and she did not request reimbursement from her employer.

Balcells also attended conferences in Rome, Tampa, Nashville, and Chicago. She did submit reimbursement requests for all these trips except the one to Chicago, However, the university declined them. Balcells claimed a deduction for her 6 days of travel to Montreal because of its connection to research related to one of her dissertations.

Some general rules for deducting employee education are addressed in CPA exam material. The expenses must maintain or improve skills required for current employment. Costs for travel away from home to pursue qualified business education are also tax deductible. However, a tax deduction is only permitted for expenditures that are not allowed for reimbursement by an employer. Therefore, no deduction is taken when an employee fails to seek reimbursement.

Some other facts about the Balcells situation are also enlightening elements for a CPA course. Foreign travel for business education has a specific restriction. That is, no deduction is allowed for any part of the time spent traveling outside the US that is unrelated to business. Consequently, a taxpayer like Balcells is required to allocate travel expenses between personal time and business time. Further illustrating tax law complexity is the added element that this rule doesn’t apply to foreign travel lasting less than one week or that has an amount of personal time comprising less than 25 percent of the trip.

The Tax Court decision denied Balcells a tax deduction for any of the travel to Madrid because her records did not substantiate the portion of time spent for business versus personal purposes. Conversely, the cost for her trip to Montreal was tax deductible because it lasted less than one week, thus requiring no substantiation of the percentage of business time. Her travel deduction to attend conferences in Rome, Tampa, and Nashville was also allowed by the Court. However, the trip to Chicago was not tax deductible because Balcells failed to request reimbursement and thus could not prove the expenditure was a disallowed unreimbursed employee expense.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Taking the right steps for CPA preparation demands arranging work and personal schedules to accommodate daily study. People have more free time than they realize, but typically less than when they were college students. Studying for CPA testing will only occur with proper planning and sticking with a schedule.

Devising a study plan begins by examining what part of the day offers the greatest flexibility. Individuals with more control over their mornings, arise a little earlier for studying prior to work. Other people find study time at the office by staying at their desks after the workday ends.

Whichever part of every workday is scheduled for study is typically devoted to churning through sample CPA exam questions following a brief review of study materials. This leaves weekends for more intensive study over longer periods of time than the weekday routine.

The next step is confirming with an employer the designated study times. That is especially important if study is conducted at the place of employment. Obviously, employer approval is required for using a company computer to access CPA online review. In addition, a CPA candidate needs employer support to study before or after normal work hours and avoid being targeted for extra job duties.

Many CPA candidates find studying at their work desks saves valuable time. By arriving at work early or staying late to study, commuting times are shortened. This time saving technique often creates the needed study periods.

Allowing a gap of time between graduating from college and taking the CPA exams is a definite advantage. People in this situation can devote all their time to studying. This shortens the time required to fully prepare for passing the CPA examinations. A study course is easily completed in a few weeks.

However, most individuals don’t have the financial luxury of exam preparation while not drawing a paycheck. Therefore, scheduling discipline is extremely important for anyone working a full-time job while engaged in CPA exam study. The combination of work and study also necessitates allowing several months for the process. Consequently, CPA candidates should schedule exams well in advance of the testing dates. Saturday exam times fill quickly at testing centers. At the least, having a Saturday test date avoids conflict with most work schedules.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Choosing to become a CPA opens opportunities for a variety of roles. First, large enterprises want accountants to maintain complex systems for measuring and assessing corporate initiatives and risks. Secondly, the changing employment condition in many industries is creating a new breed of entrepreneur needing to outsource accounting and tax work. These small operations also rely upon accountants as vital sources of advice.

The key to meeting these demands is attaining the CPA designation, which demonstrates possession of the highest level of achievement in accounting. That amount of knowledge is exemplified by the information covered in CPA exam review. Studying all that detail is worth the challenge in order to enter the accounting field as a CPA.

By reaching the CPA pinnacle, an accountant enhances professional positioning for a rewarding career. CPAs have the most respect and admiration among their peers in the financial profession. The steps to undertake CPA exam study begin a process of attaining the high proficiency in accounting that results in promotions and outreach by the public. CPAs are trusted for technical aptitude, ethical responsibility, and commitment to rendering sound advice.

This professional respect has caused CPAs to give their profession one of the highest rankings for job satisfaction. Another benefit of pursuing CPA courses is availability of work with plenty of variety. Accountants can choose positions with a lot of travel or enmesh themselves in key roles within a small community. They can track down international fraud in financial reporting or provide critical services for local businesses to navigate the complexity of tax returns.

Most importantly, study for CPA designation sets an accountant apart in a field with high employment demand. Compounding the attraction is a shortage of CPAs. Corporations are finally absorbing the impact of more stringent public accounting standards implemented in 2002 with the passage of the Sarbanes-Oxley Act. Now large companies face the likelihood of new International Financial Reporting Standards. In addition, they are relying more upon accounting teams to track and evaluate the ever more complex situations in a global economy.

Also driving the demand for accountants is the number of individuals starting businesses or becoming independent contractors for the first time. They face unknown tax circumstances that an accountant with CPA training can best address.

The professional choices for a CPA are numerous and each of them offers apparent job stability for many years into the future.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

LaPoint played during the 1980s for several teams. He married in 1990 as his pitching career was near the end. At the beginning of his final major league season, he and his new wife executed a postnuptial agreement. An attorney was likely involved  in drafting the agreement with terms specified by the parties. Unfortunately, LaPoint seems to have averted obtaining tax advice. Accountants can render valuable details about the tax consequences of contractual clauses by applying the information in CPA books.

One of the provisions in the postnuptial agreement provided that, after any divorce, LaPoint’s wife retained ownership of the settlement agreement with major league baseball relating to collusion among team owners in the 1980s about player contracts. This agreement provided LaPoint with payments of $50,000 per year.

Anytime a contract calls for payments after divorce, assessment of the tax impact is vital. Several possibilities are described in CPA review courses about the tax treatment of payments pursuant to termination of a marriage. First, payments to settle the dissolution of the marital estate do not affect taxable income. Secondly, alimony payments made after a divorce do appear on tax returns of both payer and payee.

Answers to CPA questions concerning alimony dictate that payers of these amounts are entitled to tax deductions and recipients report taxable income. However, whether payments are alimony or something else depends upon several factors.

LaPoint’s marriage ended right after the new century began. He assumed that the payments under the postnuptial agreement were alimony. When he deducted $384,964 as alimony on his 2004 tax return, the IRS disagreed. The Tax Court sided with the IRS.

Even if LaPoint used an accountant to prepare his tax returns, the CPA could rely upon LaPoint describing the payments as alimony. Tax work would not necessarily have entailed examination of the postnuptial agreement. That CPA task arises only if LaPoint had requested evaluation of the agreement to identify the tax consequences. He should have made that request because the postnuptial agreement contained a clause describing it as binding on heirs. This meant that payments by LaPoint under the agreement continue even after his ex-wife’s death.

The Tax Court pointed out to LaPoint that one of the elements defining payments as alimony is that they do not survive death of the payee spouse. Listed criteria about matters like alimony are presented in CPA exam review in order to clarify such complex tax subjects. As the Court stated, a specific definition is given for alimony in order to avoid subjective inquiries about whether payments serve the same purpose as alimony.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Accountants still need to understand the basics from their CPA courses, but corporations want them to place more emphasis on analyzing and verifying data. A movement is underway to replace labor-intensive financial compilation work with higher valued strategic tasks.

In addition, automating more routine financial processes decreases the time required to produce output. Making forward-looking decisions demands immediate information that isn’t out of date.

Modern corporations have become more complex in the information they maintain. Measurements are taken that create an enormous database. A typical accounting project entails utilizing available data to create a matrix for assessing a potential problem or opportunity. This requires gathering detailed financial components and understanding their meaning as taught in CPA exam study.

Automating the compilation of data is obviously advantageous in this corporate environment. But limits exist for completely using technology. Human judgment is still relied upon. This is why corporations are seeking accountants for financial positions who pass CPA exam requirements and thus demonstrate a high level of expertise. Accountants must still occasionally apply their knowledge to financial reporting. This assures accuracy in the statistics used for high-level analytical perspectives.

Another complicating factor in the automation process is the number of unusual financial transactions incurred by particularly large organizations. These situations require manual journal entries. For instance, staff accountants must apply the base knowledge from CPA exam review to record extraordinary events related to acquisitions or reorganization initiatives.

Overall, large corporations still have plenty of positions in their finance departments for accountants. Firstly, CPAs are needed who understand how to translate complex transactions into manual journal entries. But targeting many basic accounting functions for automation is vital for enterprises of substantial size. This permits turning over to seasoned accountants the duty to evaluate data and perform complex assessments of financial scenarios.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.