CPA tax practitioners are subject to many different standards and ethics rules, including AICPA enforceable tax ethics, Circular 230, the Internal Revenue Code, state licensing boards and other regulatory agencies, professional associations and various other laws and regulations. This page provides guidance and information on tax ethics & professional standards for tax practice, as well as practice aids and resources to help members elevate their practices and maintain the highest ethical standards.
For more information, visit Professional Ethics under Interest Areas for other ethics related guidance and resources, or view the complete list of the standards and statements that the AICPA develops, issues, and enforces.
Tools & Resources
• Overview of the Federally Authorized Tax Practitioner — Client Privilege Under IRC Sec. 7525: Practice guide explaining the federally authorized tax practitioner—client privilege pursuant to section 7525, Confidentiality Privileges Related to Taxpayer Communications.
• Guidelines for Conflicts of Interest in the Performance of Federal Tax Services: Practice guide to assist CPA tax practitioners in identifying where possible conflicts arise and measures to minimize risk.
• Due Diligence in Tax Services: Practice guide delivering guidance as to what due diligence consists of in the context of tax services.
• Tax Practice Quality Control Guide : Practice guide outlining how the Statements on Standards for Tax Services affect the tax practice quality control systems for certified public accountants in public practice.
• Client Criminal Matters and the CPA: This practice guide provides practical insights concerning issues of which the CPA should be aware and procedures the CPA should follow in providing advice to a taxpayer if the CPA believes that the taxpayer may face possible exposure to allegations of fraud or other criminal misconduct.
• Report on Civil Tax Penalties: The Need for Reform: AICPA whitepaper outlining concerns about the current state of civil tax penalties and suggestions for improvement.
All AICPA members are subject to the AICPA Code of Professional Conduct, including all general and technical standards. There are several provisions in the Code of Professional Conduct that may be of particular interest to a member’s tax practice, including: Rule 101 – Independence, Interpretation 101-3 – Performance of Nonattest Service, Rule 102 – Integrity and Objectivity, Interpretation 102-2 – Conflicts of Interest, Rule 301 – Confidential Client Information, Rule 302 – Contingent Fees, and Interpretation 302-1 Contingent Fees in Tax Matters. You can view the entire Code of Conduct online.
The AICPA’s Statements on Standards for Tax Services (SSTSs) are enforceable tax practice standards for members of the AICPA. The SSTSs apply to all members regardless of the jurisdictions in which they practice and the types of taxes with respect to which they are providing services. The SSTSs and interpretations delineate members' responsibilities to taxpayers, the public, the government and the profession. They are intended to be part of an ongoing process of articulating standards of tax practice for members.
In addition to the SSTS, enforceable standards exist that may apply to members in tax practice, depending on the services being offering, including:
• AICPA Statement on Standards for Valuation Services
• AICPA Statement on Standards in Personal Financial Planning Services
Tax practitioners must also comply with Circular 230, which govern a CPA’s practice before the Internal Revenue Service.
Advocacy vs. Independence in Tax Practice
When considering relevant ethical requirements, there is an important distinction for tax practitioners regarding “independence.” Although independence of judgment is always an essential part of being a CPA, a tax practitioner is frequently called upon to be an advocate for clients. So, the independence requirement for an accounting and auditing practice is replaced with an advocacy requirement for a tax practice.
Internal Revenue Code Provisions
Members need to be alert to and comply with all other standards and ethics rules contained in the Internal Revenue Code contains. Examples of such standards and rules include (but are not limited to):
• Preparer penalty rules in Internal Revenue Code section 6694
• Confidentiality criminal penalty provision in Internal Revenue Code section 7216
• Confidentiality civil penalty provision in Internal Revenue Code section 6713
• Privilege rules in Internal Revenue Code section 7525
• Tax shelter rules in Internal Revenue Code sections 6111 and 6112
New Competency Requirement
In June, 2014, a new Section 10.35 was added to Circular 230 to address practitioner competence.
Under this new provision, a practitioner must possess the necessary competence to engage in practice before the Internal Revenue Service. Competent practice requires the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged. A practitioner may become competent for the matter for which the practitioner has been engaged through various methods, such as consulting with experts in the relevant area or studying the relevant law.
Procedures to Require Compliance
An amendment to Circular 230, section 10.36, was finalized in May 2011, stating, in part:
“Any practitioner who has (or practitioners who have or share) principal authority and responsibility for overseeing a firm’s practice of preparing tax returns, claims for refunds, or other documents for submission to the Internal Revenue Service must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees for purposes of complying with Circular 230.”
As a result, tax practitioners responsible for a tax practice or tax department must develop appropriate procedures and provide adequate staff supervision to ensure that all individuals they supervise comply with Circular 230. The AICPA has long-standing and well-established principles of quality control for accounting and auditing practices, which are outlined in AICPA Statement on Quality Control Standards No. 8, A Firm’s System of Quality Control. Although Circular 230, Section 10.36, does not require a quality-control system, it is considered a best practice to have one. The objective of a tax practice quality control system is to provide reasonable assurance of compliance with applicable statutory, regulatory, and professional requirements, including Circular 230, section 10.36.
Conflicts of Interest
The AICPA Code of Conduct states “in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.” This is a philosophy which drives the ethical behaviors and rules established by the CPA profession.
As advocates, firm personnel should seek to advance the client's position as long as that position and their efforts are in compliance with applicable professional standards, including the AICPA Code of Professional Conduct and the SSTSs, and applicable laws and regulations. Positions advocated should not result in a conflict of interest for the firm or any of its personnel, compromise the credibility of the firm or its personnel, go beyond sound and reasonable practice, pose an unreasonable risk of impairing the reputation of the firm or its personnel, or subordinate the judgment of firm personnel to that of the client.
Learning & Articles
• Tax Return Processes: The Intersection of Due Diligence and Quality Control, The Tax Adviser, Feb. 2016
• AICPA’s Revised Confidentiality Rule, Sec. 7216, and the Tax Professional, The Tax Adviser, Feb. 2015
• Setting Proper Boundaries With a Clear, Concise Engagement Letter, The Tax Adviser, Nov. 2014
NICHOLAS G. VARDALOS & COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANT
YOUR TRUSTED ADVISOR
Nicholas G. Vardalos & Company is a full service accounting firm serving clients throughout the Chicago metropolitan area, northwest Indiana and southwest Michigan.