Professional Responsibilities in a Tax Practice

Article excerpt

Professional Responsibilities in a Tax Practice

A major goal of the Internal Revenue Service is to encourage and achieve a high level of voluntary compliance with the tax laws and to maintain a high degree of public confidence in the integrity and efficiency of the service. Support for reaching and sustaining this goal requires that tax practitioners accept responsibility to assist the Service in this regard. Since approximately half of the U.S. tax returns are filed with the assistance of tax practitioners, these professionals can greatly influence the public's acceptance and understanding of the tax laws and the mission of the IRS.

Whether certified public accountants, enrolled agents, public accountants or lawyers, tax practitioners generally belong to professional organizations that provide guidance for levels of conduct, responsibilities and other ethical considerations. However, the regulations contained in Treasury Department Circular 230 specifically address all tax practitioners, regardless of professional affiliations. Circular 230 governs practice before the IRS and provides authority to the Treasury allowing disbarment or suspension from practice before the IRS. Subpart B of Circular 230, "Duties and Restrictions Relating to Practice Before the Internal Revenue Service," provides general ethical requirements but lacks specific issues and circumstances.

In August 1986, the Treasury proposed a revision to the existing standards that would subject tax practitioners to possible suspension or disbarment for providing tax services that resulted in a taxpayer penalty for "substantial underpayment" under Section 6661. The Treasury's rationale for incorporating such a harsh standard was a perceived erosion of professional responsibility by tax practitioners which may jeopardize the goals of the IRS.

This fuels the controversy of whether the tax practitioner should be viewed as a client advocate or as an extension of the IRS to enforce the tax system. Certainly the tax practitioner has an obligation to both the client and the system, but that obligation is to assist the client to comply with the tax laws, paying no more than the law requires. Circular 230 requires that tax practitioners practicing before the IRS, "shall exercise due diligence" with regard to (1) preparing, approving and filing returns and other papers to the IRS, and (2) determining the correctness of representations made to the Treasury or to the client. This is quite a broad statement, and Treasury's proposed amendment is an attempt to narrow the standard. However, many professional organizations representing tax practitioners strongly opposed the Treasury's proposed amendment. The American Bar Association (ABA) and the American Institute of Certified Public Accountants (AICPA) have joined forces to develop a standard which requires that a tax position have "a realistic possibility of being sustained administratively or judicially on its merits if challenged." Should the Treasury still want to revise Circular 230 with regard to due diligence, this "realistic possibility" standard may offer a good alternative.

It may be that the IRS will use standards set by professional groups to apply to all tax practitioners. AICPA's newly-revised Statements on Responsibilities in Tax Practice (SRTP), for example, provides guidance which is educational in nature but does not provide a specialized code of conduct for tax practice. How it might be used by the IRS is uncertain, however a general understanding of the SRTPs will keep the tax practitioner alert to potential changes in existing guidelines.

Tax Return Positions

A tax return position is defined as advice given by the practitioner or as a position fully understood and deemed appropriate by the practitioner. The practitioner should not recommend a tax return position that is designed to circumvent selection criteria that have been established by the Internal Revenue Service. …