In 2013, Beige Corporation made a cash distribution to its shareholders, one of whom was Steve Jordan. At that time, the parties involved believed the distribution was a return of capital because Beige had no E & P. Accordingly, none of the shareholders reported dividend income. In Steve's case, he reduced the $200,000 original basis of his stock investment by $40,000, his share of the distribution. In 2017, Steve discovered that E & P had been incorrectly computed. The 2013 distribution was fully covered by E & P and should not have been treated as a return of capital.

In 2018, Steve sells his stock in Beige Corporation for $350,000. He plans to report a gain of $150,000 [$350,000 (selling price) - $200,000 (original basis)] on the sale. Although Steve realizes he should have recognized dividend income of $40,000 for 2013, the statute of limitations has made this a closed year.

1. Comment on Steve's situation. Steve has asked you to prepare his tax return for 2018.Should you accept this engagement?Write a response as if it is for a partner in your firm.

Reference the AICPA Statements on Standards for Tax Services.You will need approximately 1 to 1.5 single-spaced pages for this assignment.

1. Also prepare a separate letter of no more than one page to Steve concerning this issue.