Jon Williams, CPA, is in the middle of a quandary related to his audit and tax client Oneway Corporation.

Jon Williams, CPA, is in the middle of a quandary related to his audit and tax client Oneway Corporation. The three directors of Oneway are the officers and the only three stockholders, each owning exactly one-third of the shares.

  • President Raul Jack founded the company and is now nearing retirement. As an individual, he is also Williams’ tax client.
  • Vice President Sandra Smith manages the day-to-day operations. She has been instrumental in increasing the business and its profits. Her individual tax work is done by a third party CPA.
  • Treasurer Chris Barnes has been a long-term, loyal employee responsible for many innovative financial transactions and reports of great benefit to the business. He is Williams’s close personal friend and an individual tax client.

At his annual tax planning meeting with Williams, Raul Jack discussed the tax consequences of selling his one-third interest in Oneway Corporation to Sandra Smith. Raul believes that Sandra’s business development efforts have contributed significantly to the growth of the business, so he would like to reward her with a majority ownership upon his retirement. He realizes this may be a challenge with Chris Barnes, so he wants to think more about possible incentives for Chris if this plan occurs.

Around the same timeframe, over an afternoon golf game with Chris Barnes, Barnes confides in Williams that he fears that Raul Jack and Sandra Smith will make a deal, put him in a minority position, and try to force him out of the company. Barnes says, “Jon, we’ve been friends a long time. Please keep me informed about Raul’s plans. My interest in Oneway Corporation represents my life savings and I have a lot invested personally and professionally in the company.”

Jon was clearly unsure of what to do given his roles in both relationships. He acknowledged to himself that he does not have a strong relationship with Sandra at this time, and she uses another CPA for her tax return. As such, he may lose the Oneway engagement if Sandra acquires Raul’s shares and controls the corporation. On the other hand, Chris will probably suffer a great deal financially from the ownership change transaction if he does not know about Raul’s plans, and Jon’s unwillingness/inability to keep him informed will probably ruin their close friendship.

Jon ponders the problem.

Give Williams advice about alternative actions, considering the constraints of the AICPA Code of Professional Conduct.

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