2. Elements of Taxation

3. Elements of Tax Practice

4. Elements of Tax Practice
Tax compliance
Gathering of pertinent information, evaluation
Evaluating and classifying the information
Filing of necessary tax returns
Representing clients before the IRS during tax return audits
Tax planning
Arranging transactions to optimize (usually minimize) tax liability
tax avoidance – legitimate
tax evasion – illegal
Planning undertaken for
open transactions – plan for pending future transactions
closed transactions – plan for how to best present past transactions

5. Elements of Tax Practice
Tax litigation
Settling disputes with the IRS in court
Attorneys usually handle litigation beyond initial appeal of an IRS audit
Tax research
Analyze and determine answers to tax problems
Steps:
Identify issues
Determine proper authorities
Evaluate appropriateness of authorities
Apply authority to specific fact situation

6. Sources of Rules and Ethics for Tax Practitioners

7. Who May Practice “Practice” before IRS Who may practice
Represent clients during audits
Who may practice
Attorneys
CPAs
Enrolled agents
Enrolled = passed IRS exam or formerly employed by IRS for 5 years
Enrolled actuaries
Limited practice without enrollment

8. Proposed Requirements for Tax Return Preparers
Must register with IRS, pay a fee, and obtain a preparer tax identification number (PTIN)
Pass competency tests
Continue education 15 hours per year
Subject to tax compliance checks
Must follow Circular 230 ethics standards

9. Practice Before the IRS (Circ. 230)
Circular 230 subpart B provides a set of rules of conduct, which includes:
Must furnish information to the IRS on request
If have knowledge of client’s omission, must advise client of both error and remedy
Exercise due diligence
Must not unreasonably delay matters before the IRS
May not act as a notary public for clients
May not charge contingent or unconscionable fees
Must promptly return all client records upon request (but may keep copies of client records)

10. Solicitation and Advertising (Circ. 230)
Most media permissible
Cannot contain false, fraudulent, coercive, or unfair statements
Must comply with ethical standards of other authorities (e.g., ABA, AICPA, State CPA societies, state regulatory agencies, National Association of Enrolled Agents, etc.)

11. Best Practices (Circ. 230)
Aspirational standards to help tax advisors provide clients with the highest quality representation concerning Federal tax issues. Standards address:
Communications with clients
Establishing relevant facts
Evaluating reasonableness of assumptions
Relating the law to the facts
Arriving at supported conclusions
Advising clients of the conclusions
Acting fairly and with integrity before the IRS

12. Positions and Covered Opinions (Circ.230)
A practitioner should not recommend a position unless the position has a more-likely-than-not possibility of being sustained on its merits
Strict standards for written communication encompassing a covered opinion
A “covered opinion” is written advice that concerns
A tax avoidance transaction
A transaction where the principal purpose is tax avoidance or tax evasion
Reliance or marketed opinion
A transaction subject to confidentiality provisions
A transaction subject to contractual protection

13. Other Written Advice (Circ. 230)
A practitioner should not give written advice that:
is based on unreasonable factual or legal assumptions (including assumptions as to future events
unreasonably relies upon representations, statements, findings or agreements of the taxpayer or any other person
does not consider all relevant facts that the practitioner knows or should know
takes into account the possibility that the return will not be audited, that the issue will not be raised in an audit, or that an issue will be resolved through settlement if raised

14. AICPA Code of Professional Conduct
Governs AICPA members
All services provided by CPAs
Purpose is to provide:
Enforceable comprehensive code of ethical and professional conduct
Guide for members in answering complex questions
Assurance to the public
Other guidance comes in the form of:
Interpretation of the rules
Ethics rulings
Ethics features
Departures from this Code must be justified

15. AICPA Code of Professional Conduct
Independence (Rule 101)
A CPA in public practice must be independent of enterprise for which services are being provided
Independence is impaired if certain financial relationships exist with a client, e.g.:
Direct or material financial interest in client’s business
Jointly held material investments
Loans to or from the client
Officer, director, employee or underwriter of the client
Integrity and objectivity (Rule 102)
Services must be provided with objectivity and integrity and avoid conflicts of interest

16. AICPA Code of Professional Conduct
General standards (Rule 201)
Competence
Due professional care
Adequate planning and supervision
Obtain sufficient relevant data for conclusions or recommendations
Compliance with standards (Rule 202) and accounting principles (Rule 203)
No departures unless departure is described, its effect is described, and justification for departure is disclosed
Confidential client information (Rule 301)
No disclosure without client consent
Exceptions:
Conflict with rules 202 and 203
CPA served with subpoena or summons

17. AICPA - Code of Conduct Contingent fees (Rule 302)
Fees must not be contingent on findings of services (e.g., type of audit opinion)
Acts discreditable (Rule 501)
Committing a felony
Failing to return client records after a client request
Signing a false concern
Issuing a misleading audit opinion
Advertising and solicitation (Rule 502)
Cannot use false, misleading, or deceptive advertising/solicitation

18. AICPA - Code of Conduct Commissions and referral fees (Rule 503)
Cannot receive a payment for referral of a product or service of a third party to a client
Accepting payment would create conflict of interest
Exception: A CPA performing only tax work or other nonaudit work may accept a commission
Form of organization and name (Rule 505)
Form
Only those forms allowed by state law or regulation, usually a proprietorship, partnership,or professional corporation
Name
Cannot use misleading name
Acceptable to use past owners’ names

19. Statements on Standards for Tax Services
Statements on Standards for Tax Services (SSTS) issued by AICPA intended to:
Address problems inherent in the tax practitioner’s dual role in serving the client and the public
Supplement AICPA Code of Professional Conduct and Circular 230

20. Statements on Standards for Tax Services
Tax return positions (SSTS 1)
Should have good-faith belief that position has a realistic possibility of being sustained
Answers to questions on returns (SSTS 2)
Reasonable effort to obtain information to answer all questions
Exceptions:
Data not readily available and not significant to the outcome of return
Meaning of question uncertain
Answer too voluminous
Not acceptable on Form 1120
Certain procedural aspects of preparing returns (SSTS 3)
May rely on client information without verification unless information appears to be incorrect, incomplete, inconsistent
Not required to examine supporting documents

21. Statements on Standards for Tax Services
Use of estimates (SSTS 4)
Use estimates if impractical to obtain exact data and if estimates appear reasonable
Disclosure of estimates may be necessary:
Records destroyed by disaster
K-1’s not received
Departure from a position previously concluded in an administrative proceeding or court decision (SSTS 5)
Prior year disposition may not prevent recommending a different treatment of a similar item in a later year
CPA and IRS not bound to act consistently with previous position, IRS usually is consistent, however

22. Statements on Standards for Tax Services
Knowledge of error (SSTS 6)
Must inform client upon discovery of an error in a previously filed return, an error in a return that is the subject of an administrative proceeding, or a taxpayer’s failure to file a required return
Must recommend appropriate action
Not the CPA’s duty to inform tax authority
Form and content of advice to clients (SSTS 8)
Judgment reflects professional competence
Use written communication for complex matters
Oral communication okay for simple matters

23. Sarbanes-Oxley and Taxation
Auditors may not provide certain nonaudit services to audit clients
Sarbanes-Oxley Act of 2002 lists nine such prohibited services
List does not include tax services
Services not listed may be provided
But only if approved in advance by the audit committee

24. Nonregulatory Ethical Behavior Models
Nonregulatory ethics involve making choices that are not always clearly spelled out (resolving ethical dilemmas)
Ethical reasoning
End-based – An action is right if it produces at least as much net good as any alternative action could have produced
Rule-based – Rules are made to apply to everyone with no exceptions
“Zero Tolerance”
Care-based – Decisions based on the treatment you yourself would like to receive (Golden Rule)

25. Sources of Ethical Behavior and Impacts

26. Legal Research by CPAs
When does undertaking tax research become the unauthorized practice of law?
Different tests/standards across time
Shouldn’t be wholly within the field of law
Should be incidental to accounting practice
General rule: CPAs should avoid providing general legal services