Brenda Saha sent the tax returns she prepared for Mr. Lee to Vincent Dim, the manager of the tax department at Cello Financial Services, a subsidiary of Cello Communication. Dim asked Brenda to come to his office at 9:00 am on Monday, April 13, 2015. Brenda had no idea why Dim wanted to speak to her. The only reason she could come up with was the tax return for Mr. Lee.

Brenda, come in, Vincent said.

Thank you, Vincent, Brenda responded.

Do you know why I asked to see you?

Im not sure. Does it have something to do with the tax return for Mr. Lee? asked Brenda.

Thats right, answered Vincent.

Is there a problem? Brenda asked.

I just spoke with Mr. Lee. I told him that you want to report his winnings from the lottery. He was incensed.

Why? Brenda asked. You and I both know that the tax law is quite clear on this matter. When a taxpayer wins money by playing the lottery, then that amount must be reported as revenue. The taxpayer can offset lottery gains with lottery losses, if those are supportable. Of course, the losses cannot be higher than the amount of the gains. In the case of Mr. Lee, the losses exceed the gains so there is no net tax effect. I dont see the problem.

Let me tell you the problem, Vincent stated sharply. Its taken me years to gain the trust of Mr. Lee. Our firm now audits his companys books, prepares its annual tax return, prepares Mr. Lees personal tax return, and provides financial planning services for both. Mr. Lee and Thomas Industries together is the largest client in our office. I cant afford to lose any of the business the client provides for our firm. As you know, we are under increasing competition from larger regional firms that are looking for new clients. If we dont support Mr. Lee, some other firm will step in and do it. Poof, there goes 20 percent of our revenues.

Brenda didnt know what to say. Vincent seemed to be telling her the lottery amounts should not be reported. But that was against the law. She turns to Vincent and asks: Are you telling me to forget about the lottery amounts on Mr. Lees tax return?

Honey, I want you to go back to your office and think carefully about the situation. Consider that this is a one-time request and we value our staff members who are willing to be flexible in such situations. Lets meet again in my office tomorrow at 9:00 am.

Required: Assume Brenda has no reason to doubt Vincents veracity with respect to the statement that it is a one-time request. Should that make a difference in what Brenda decides to do? Why or why not? How would you advise Brenda?