Revised AICPA statements on standards for Tax Services (SSTS) became effective on January 1, 2010, and provide high, enforceable ethical responsibilities for CPAs in providing tax services. The SSTS were updated for changes in external standards and clarified for points raised by practitioners about the prior SSTS.
The statements provide guidance to CPAs as to good standards of tax practice and assurance to the public of the high self-regulatory standards to which CPAs hold themselves. CPAs need to follow the SSTS or face potentially severe sanctions. Failure to follow the SSTS can result in disciplinary action under the AICPA Code of Professional Conduct Rules 201 (general standards) and 202 (technical standards), with possible sanctions up to termination of AICPA membership. A CPA’s state licensing authority can also review any violation for termination of the right to practice. Even before the SSTS were binding under the Code of Professional Conduct, the predecessor Statements of Responsibilities in Tax Practice were cited in civil liability cases as the professional guidelines of good practice.
Seven statements provide guidance on various aspects of tax practice in all jurisdictions where CPAs practice:
- Statement No. 1 describes the level of authority needed to prepare or sign any tax return or recommend a tax return position;
- Statement No. 2 addresses the level of effort required from CPAs in answering all questions (broadly defined) in a tax return, including situations in which an answer may be omitted;
- Statement No. 3 discusses when CPAs may rely, without verification, on information furnished by the taxpayer when preparing a return;
- Statement No. 4 covers CPAs using tax- payer estimates in preparing tax returns;
- Statement No. 5 deals with recommending positions that are contrary to an administrative proceeding or court decision with respect to the taxpayer’s prior return;
- Statement No. 6 sets forth actions that a CPA should take upon becoming aware of an error in a prior return or of the failure to file a required return; and
- Statement No. 7 deals with the form and content of advice to be provided to taxpayers and considers the circumstances in which a member should communicate with a taxpayer about the effect of subsequent developments on previously rendered advice.
The most important substantive change in the revised SSTS is in Statement No. 1. Here the statement says that a CPA must follow the reporting and disclosure standards required by the governing jurisdiction when recommending a tax return position or preparing or signing a tax return. If the taxing authority has no written standard or the standard is lower, for undisclosed positions the standard will be “realistic possibility of success” and for disclosed positions “reasonable basis.” The prior “not frivolous” standard for disclosed positions is raised by this new standard.
In addition, new SSTS No. 7 (previously No. 8) notes that when communicating written advice to a taxpayer, members should comply with any relevant standard of the governing tax authority. CPAs should consider the tax return reporting and disclosure requirements and the potential penalty consequences in a tax return based on the advice that is being provided. The statement provides an expanded list of factors that should be considered in determining the form of advice to a client.
The current SSTS interpretations are being revised to reflect changes in the new version of the SSTS.
CPAs should review the revised SSTS for changes and clarifications. The revised SSTS are available without charge on the Tax Section website (featured content on the home page) or in print for a charge at the CPA2Biz website (www.cpa2biz.com).
William Stromsem is communications director in the AICPA’s Tax Division, an associate professor of accountancy at George Washington University, and a member of the board of DC Community Tax Aid. For more information about this column, contact Mr. Stromsem at email@example.com.