CPA tax practitioners are involved in a myriad of client engagements ranging from tax planning and compliance services, to work before state and local taxing authorities, to representing clients in adversarial proceedings at the appellate level of the IRS. This competitive practice environment is constrained by client expectations, including a willingness to pay for professional services, that may produce potential conflicts between CPA and client interests. Particularly in tax matters, CPAs must constantly balance ethical responsibilities with their professional obligation to serve as client advocates.
Unfortunately, accounting and tax practice manuals provide little guidance to enable practitioners to identify and avoid conflicts of interest that may arise in tax practice. The AICPA tax practice manual neither identifies nor discusses conflicts in detail, but merely warns CPAs to avoid conflicts of interest.
Nevertheless, CPAs must be sensitive to the potential for conflicts of interest that may arise under Rule 102 of the AICPA Code of Professional Conduct (the code) and Revised Interpretation 102-2 (March 1995). This revised interpretation both broadens the meaning of conflict of interest and provides examples of situations that may constitute a conflict of interest or otherwise impair an accountant's objectivity in providing personal financial planning and/or tax services.
AICPA Professional Standards
The code indicates that the variety of attest, tax, and management advisory services performed by public accountants may produce conflicting pressures and objectives. In providing attest services, for example, CPAs are to be independent. In contrast, CPAs may serve as client advocates when providing tax services. When providing consulting services, however, CPAs must avoid acting or even appearing to act as a member of management.
In this diverse practice environment, a tax practitioner may ask, What should I do about conflicting pressures and the conflicts of interest they may generate?" and "Where is the guidance to help me meet the requirements of the code?" The short answer to the first question is that tax practitioners should avoid all conflicts of interests in providing services to any future, current, or potential client whether a business entity or individual. Such advice presumes, of course, that practitioners can anticipate and recognize potential conflict-of-interest situations in a timely manner.
There is no short answer to the second question. To comply with the code, practitioners must look both inside and outside the AICPA for guidance. The Interpretations of Ethics Rules (Interpretations), Rulings on Ethics Rules (Rulings), and Statements on Responsibilities in Tax Practice (SRTPs), provide guidance within the AICPA. External guidance may be found in state administrative codes; state accountancy association rules, interpretations, and rulings; and case law. Unfortunately, these latter sources provide practitioners with minimal assistance in identifying and resolving conflicts of interest in tax practice.
The code does not impose separate professional standards of conduct upon tax practitioners. It requires, however, attitudes and habits of truthfulness and integrity in all of a CPA's practice, including tax practice." When performing any professional service, Rule 102 requires that a CPA "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." Interpretation 102-2 (revised in March 1995) specifically describes conflict of interest:
A conflict of interest may occur if [an accountant] performs a professional service for a client or employer and the [accountant] or his or her firm has a relationship with another person, entity, product, or service that could, in the [CPA's] professional judgment, be viewed, by the client, employer, or other interested parties, as impairing the [CPA's] objectivity. …