Tax Practice Quality Control Guide

By Steven F. Holub, T. Christopher Muirhead, and Joseph F. Scutellaro

Co-Editors: Steven F. Holub, CPA, and Jane T. Rubin, CPA

The AICPA has provided substantial guidance to practitioners over the years on quality control as well as guidance regarding tax practice reviews, which are an integral part of the quality control process. It is important that all members of the firm (partners and employees) understand the firm's commitment to the process. A firm should ensure that all members buy in to the process and encourage an open and honest discussion of the issues.

Quality control in tax practice is closely aligned with quality control standards applicable to a firm's audit practice. The following discussion regarding the five elements of quality control is included in the AICPA Guidelines for Voluntary Tax Practice Review.

Since 1997, the AICPA Statement on Quality Control Standards No. 2 has defined five elements of quality control for accounting and auditing practice:

  • Independence, integrity, and objectivity;
  • Personnel management;
  • Acceptance and continuance of clients and engagements;
  • Engagement performance; and
  • Monitoring.

These five elements are the foundation of any CPA firm's quality control documentation, whether accounting and auditing or tax. Although there is no requirement for a tax practice to have a quality control system under either the AICPA Professional Standards or the Circular 230 guidelines for professionals practicing before the IRS, the AICPA recommends adopting a tax practice quality control system.

The AICPA's Guidelines for Voluntary Tax Practice Review (1998) adapts the five quality control elements for accounting and audit practice to tax practice by making only one modification: changing "independence" to "advocacy." This is an important change. Although independence is critical to accounting and auditing, it is not required in many areas of a tax practice. Rather, a tax practitioner is frequently called upon to be an advocate for clients.

Advocacy, Integrity, and Objectivity

In its tax practice, the firm acts as an advocate for the client. In fulfilling this role, the firm should establish policies and procedures to provide reasonable assurance that all personnel perform all professional responsibilities with integrity and maintain objectivity in discharging professional responsibilities. As advocates, members of the firm seek to advance the client's position as long as that position and their efforts are within standards set by the law and by appropriate regulatory bodies. Positions advocated should not compromise the credibility of the practitioner, go beyond sound and reasonable practice, pose an unreasonable risk of impairing the practitioner's reputation, or subordinate the practitioner's judgment to that of the client.

The firm should consider establishing policies and procedures to accomplish the following objectives to the extent such objectives are applicable to its tax practice:

  • Require that people at all organizational levels adhere to the AICPA Code of Professional Conduct, including the Statements on Standards for Tax Services, Circular 230, and the rules, regulations, interpretations, and rulings of the IRS and any other regulatory agencies, or be able to document and justify appropriate departures (for example, a filing position contrary to an IRS revenue ruling).
  • Communicate the firm's policies and procedures on advocacy, integrity, and objectivity to people at all levels within the firm. This includes (1) the need to treat as confidential all information regarding client tax matters and (2) independence in client relationships.
  • Document, where appropriate, compliance with policies and procedures relating to advocacy, integrity, and objectivity.

Adapted from Holub, Muirhead, and Scutellaro, Tax Practice Quality Control Guide (AICPA 2002). The authors acknowledge the assistance of Michael Mares of Witt Mares, CPAs, in the preparation of this item.


EditorNotes

Steven Holub is a partner in Cherry Bekaert & Holland, LLP in Tampa, FL, and is former chair of the AICPA Tax Division's Tax Practice Management Committee. Jane Rubin runs Educational Strategies Co. in St. Louis, MO, and is chair of the AICPA Tax Division's Tax Practice Improvement Committee.

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