Academic journal article Journal of Accountancy

Tax-Planning Services for Clients or Employers: CPAs Should Understand Their Responsibilities

Academic journal article Journal of Accountancy

Tax-Planning Services for Clients or Employers: CPAs Should Understand Their Responsibilities

Article excerpt

For several years Congress has challenged the AICPA to explain how its Code of Professional Conduct controls and disciplines members who are involved with abusive tax shelters. Concluding that there was a need for a comprehensive interpretation of member responsibilities that would apply across the spectrum of tax planning and include tax shelters (regardless of how that term is defined), the AICPA tax executive committee issued Interpretation no. 1-2, "Tax Planning," of Statement on Standards for Tax Services no. 1, Tax Return Positions. The interpretation becomes effective on December 31, 2003. (See Official Releases, page 105, for the text of Interpretation 1-2.)


In response to the congressional inquiries, the tax executive committee formed a task force to see whether the AICPA needed to address any real or perceived improper behavior by CPAs with regard to tax shelters and whether the eight statements on standards for tax services (SSTSs) adequately addressed abuses. The task force considered two key questions:

* Do the SSTSs provide members sufficient guidance on tax practice involving tax shelters that includes promotion and marketing, providing opinion letters, recommending tax return positions and preparing or signing returns?

* If not, what additional guidance do members need to help them deal with tax shelters and tax planning?

The task force concluded there was no need for a new standard to address tax shelter issues because SSTS Statement no. 1, Tax Return Positions, and Statement no. 8, Form and Content of Advice to Taxpayers, adequately incorporate these concerns. The task force decided an interpretation could define what constitutes "tax planning" and give members additional guidance. Because it would cover all tax-planning activities, the interpretation need not specifically reference tax shelters, which fall under this umbrella.

The task Force was also concerned that if it specifically addressed tax shelters, it would have to define the term. Legislators and regulators previously had been quite frustrated in coming up with an appropriate definition. (For example, the tax shelter regulations under IRC sections 6011, 6111 and 6112--which focus on disclosure--now refer to "reportable transactions" rather than "tax shelters.") The task force concluded the ever-changing nature of the tax shelter controversy could quickly render any definition obsolete, requiring ongoing modifications. It opted not to try defining this thorny term, a position consistent with the intent of the SSTSs with respect to subjective rules and undefined terms, as stated in the preface to SSTSs nos. 1 to 8 (see Official Releases, JofA, Oct.00, page 140).

This article provides an overview of Interpretation 1-2, some background on how the task force that developed it reached its conclusions and some questions and answers that will help members apply the new rules.


In considering the scope and content of this interpretation, the task force decided to include concepts such as "business purpose," "economic substance" and the "likelihood of success" as well as "reliance on others," "reasonableness of assumptions and representations," "diligence as to facts," "content of opinions," "tax opinions provided for nonclients," "marketing of others' tax products" and tax product marketing in general. It concluded that identifying these elements would give members practical parameters they could use in fulfilling their ethical responsibilities in tax planning.

However, the interpretation excludes terms such as "step transactions," "sham transactions" and "form over substance" because they are well-established judicial doctrines members already are aware of as part of their duty to provide competent advice under SSTS no. 8. Interpretation no. 1-2 also excludes "products offered under terms of confidentiality" which is a concern specific to corporate tax shelters and thus inappropriate for a general interpretation of ethical responsibilities. …

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