Client being investigated for elder fraud

[Strongsilence-CPA]

My 77-year-old client is a realtor and property management assistant to an elderly woman (~86 years old) who is also a client. I have never met her. She was recently diagnosed with cognitive impairment and is no longer allowed - legally - to manage her financial affairs and properties, according to the attorney-trustee.

I also prepare a Special Needs Trust for which she was the trustee. The atto

The 77-year-old client is being investigated for financial improprieties involving the woman.  He doesn't know he is.  I have finished his tax return but now wonder about whether he provided complete and accurate numbers.  He charged the woman for his services.  Issue:  These amounts could be understated. Low reported amounts of his service income would be expected if one were embezzling money. 

Issues?

[Strongsilence-CPA]

If he is embezzling from her, I could verify HIS real estate management income by comparing it to the amount of expense on her books.   He could cover his tracks by misstating her books.

I will get a better understanding later when I talk with the attorney.

[IRonMaN]

Would you have questioned the numbers if the investigation hadn't popped up?

[abctax55]

I'm curious how you know he's being investigated if he doesn't know, yet.

[Strongsilence-CPA]

Probably. I am always curious about self-employed clients with high personal expenses who can carry 3+ years of self-employed losses.  Especially a realtor in this town.  And he always asks me to reduce meals deduction and his interest deduction (on his credit card) to avoid red flags.   

[Strongsilence-CPA]

"I'm curious how you know he's being investigated if he doesn't know, yet."

I was not clear.  The attorney told me so.  He has worked with him for some time, and they appear to have had a good relationship. The attorney has been the trustee for the woman's SNT and has engaged me to prepare that return.  I think he discovered something.  Should I ask him what evidence has for his accusation?

[IRonMaN]

"I am always curious about self-employed clients with high personal expenses who can carry 3+ years of self-employed losses"

Kinda makes you wonder what they live on, doesn't it?  I think you are kinda between a rock and a hard place right now.  You can't tell him to buzz off because of an investigation that you were informed of from other sources.  Personally, I would tell him that you are a little uncomfortable preparing the return as is if he keeps reporting losses and see what happens.

[Strongsilence-CPA]

"Personally, I would tell him that you are a little uncomfortable preparing the return as is if he keeps reporting losses and see what happens."

Will consider that.  I might compare his income to the contractor expense on her (the elderly woman) books. 

[rbynaker]

I think this is a textbook conflict of interest situation and you need to immediately disengage from one (or both) parties.

[Strongsilence-CPA]

"I think this is a textbook conflict of interest situation and you need to immediately disengage from one (or both) parties."

Is that because his income tax depends on the deduction that she takes. And her tax depends on the income he reports?

so, if her books have recorded her contract labor deduction. And that deduction is higher than the income he reports, then there is a conflict.  I see that.

But I can't audit them so maybe disengagement is the best.