Williams, the AICPA member referred to above, is in the process of preparing a federal income tax return for an individual taxpayer who has recently had a stroke which impairs the taxpayer's ability to speak and to comprehend complex communications.
Unfortunately, the taxpayer has always had a unique system of compiling tax related information and no family member has access to the complete information surrounding the financial affairs of the taxpayer. Based upon his preparation of the taxpayer's prior years' tax returns, Williams has been able to contact the taxpayer's employer, investment broker and other third parties in order to attempt to construct an accurate picture of the taxpayer's income and expense for the tax year. Although Williams believes he has assembled a near complete picture of the taxpayer's affairs, he is aware that, based on past returns, there is one taxpayer stock investment in a closely held corporation as to which he has not been able to receive a Form 1099 indicating dividend income for the tax year payable. Apparently, the closely held corporation reported dividend income directly to the taxpayer and no brokerage house was involved in acting as transfer agent or dividend servicing agent. In past years the income was simply reported as "dividend from private stock investments", and now Williams cannot locate the name of the company and is not even sure that it is still in business. In an attempt to prepare a reasonably accurate return, Williams decides to estimate the dividend income based on the tax return filed for the prior tax year. In so doing, Williams merely used the same dividend amount as reported in the prior year. Please comment on the whether this approach is appropriate for a member of the AICPA to use.