Teaching tax ethics: Resources for educators

Editor: Annette Nellen, Esq., CPA, CGMA

New Year’s Day, 2024, was a momentous date for tax educators, when the revised AICPA Statements on Standards for Tax Services (SSTSs) and new CPA Exam content became effective. The SSTSs had been previously revised effective January 2010, and although the 2010 version is still useful for tax practitioners, the 2024 version has been updated to address situations that were not formerly covered as well as changes in the tax practice environment. This column focuses on providing tax educators with some suggestions and tools to consider when developing course syllabi on taxation, particularly tax practice ethics, and lessons to address these new content areas. The SSTSs and other professional standards, as well as tax statutes and official guidance, provide rich and authoritative sources of such materials, along with other free, publicly available aids (see “Ethics Case Resources” at the end of this column).

Revised SSTSs and other ethical rules

The SSTSs are part of the AICPA Code of Professional Conduct (AICPA Code) and, as such, apply to all members of the AICPA and any state licensing process that incorporates the AICPA Code as the applicable ethics rules for CPA licensees in that jurisdiction. The SSTSs represent the professional standards for any CPA who provides tax services, and their application is not limited to CPAs who restrict their practice to tax matters. The revised SSTSs were developed over a several-year process involving volunteers, educators, practitioners, and AICPA staff. Once a final proposal was developed, the entire AICPA membership was invited to comment, and following changes made through that process, the Tax Executive Committee voted to adopt the changes and issue the final rules. Interpretation Nos. 1-1 and 1-2 have not been revised, and informal guidance in the form of FAQs hasn’t been provided. Although a full discussion of all those steps and content is beyond the scope of this column, here are some key highlights of the new standards:

• They retain the existing jurisdictional scope — any tax service (state, international, local, income, property, etc.), not just federal tax;
• They reorganize the standards to better reflect modern tax practice activities;
• They clarify the meaning of “tax positions,” both for providing advice generally and for compliance purposes; and
• New standards address:
  • Data protection;
  • Reliance on tools; and
  • Representation engagements.

For more complete discussions of the revised SSTSs, see Purcell and Karl, “Applying the Revised AICPA Tax Practice Standards,” 237-2 Journal of Accountancy 18 (February 2024); Plascencia, “Understanding the Updated Tax Ethical Standards,” 54-11 The Tax Adviser 34 (November 2023); Holets, “Proposed AICPA Tax Standards Address New Concerns,” 53-11 The Tax Adviser 48 (November 2022); and Holets, “AICPA Finalizes New Standards on Tax Positions,” 54-8 The Tax Adviser 44 (August 2023).

In addition to the SSTSs, CPAs who engage in tax practice or who provide tax services are subject to the following ethical standards and provisions:

• Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10) (last revised June 2014);
• Sec. 6695 (tax preparer penalties);
• Secs. 6713 and 7216 (improper disclosure or use of taxpayer information); and
• Other Sec. 6000- and 7000-level IRC administrative sections.

All CPAs (as well as attorneys and enrolled agents) are subject to Circular 230 when representing a client before the IRS. Although the IRS Priority Guidance Plan for 2023—2024 includes revisions to Circular 230, no projects have been started to do so as of this writing. The new SSTSs reflect multiple changes in the tax practice environment that currently are not specifically addressed in Circular 230.

There are many parallels between the SSTSs and Circular 230, such as protecting records and taxpayer information, basing tax position advice on authoritative pronouncements, and avoiding conflicts of interest, but there are also some major differences. (See the sidebar, “Comparison of AICPA and IRC/Treasury Ethics Standards.”) Additionally, unlike the SSTSs, Circular 230 applies only to federal tax submissions to the IRS.

Violations of either the SSTSs or Circular 230 can result in disciplinary action, such as censure or even expulsion from the group of representatives with privileges to practice before the body, but neither can result directly in a CPA’s losing the permit to practice. A determination to remove a license from a licensee can be made only by a state licensing body and only after a hearing with the opportunity for the challenged CPA to appear and provide countering evidence. However, violation of either the SSTSs or Circular 230 could be the basis of a complaint against a CPA licensee, which could ultimately lead to a removal of the CPA license.

New CPA Exam content

There are two broad components to the new Exam: (1) the Core Competencies sections, which test knowledge of auditing and attestation, financial accounting and reporting, and tax and regulation, and (2) a Discipline section. All candidates must pass the three Core Competencies sections and one of the three Discipline sections (at the candidate’s discretion): business analysis and reporting, information systems and controls, or tax compliance and planning.

In the Tax and Regulation section, which all candidates are required to pass, the blueprints for the Exam list the following topical areas:

• Ethics and responsibilities in tax practice (e.g., Circular 230, tax return preparers, etc.);
• Licensing regimen for CPAs;
• Federal tax procedures, including proper disclosures, substantiation, and penalties; and
• Legal duties of CPAs in tax practice.

In the Discipline section for tax compliance, the blueprints do not list specific tax ethics or responsibilities topic areas but instead focus on planning and compliance for individuals and entities, including property dispositions.

Many accounting programs continue to require only a single tax course, which could either be primarily focused on individuals or entities or, alternatively, could be structured as a comprehensive course that combines both areas. If there is only a single required tax course, given the extensive array of topics that the CPA Exam expects all candidates to demonstrate competency in, accounting programs should consider whether that course has sufficient tax content to prepare graduates for success on the new Exam. If educators foresee that some of their candidates may intend to pursue the tax discipline in testing, programs should evaluate making a second course available to afford students with exposure to the depth of individual and entity taxation topics that candidates can anticipate encountering on the Discipline examination.

The AICPA’s Model Tax Curriculum (MTC) is designed as a resource to assist tax accounting educators in developing courses to best prepare students to become professional accountants, although not specifically targeted to only CPA-track education. As part of a financial literacy project, the AICPA formed a task force in November 2022 to consider tax literacy and the broader impacts of the CPA Exam on the MTC. The task force has not yet completed its work; however, the 2014 version of the MTC included coverage of both the SSTSs and Circular 230.

Practical advice for tax educators

Many, but not all, tax educators have significant experience as tax practitioners in public accounting, industry, or government. Tax educators with professional experiences that dealt with tax ethics challenges, tax representation dilemmas, and so on, can rely on those experiences in teaching students about tax ethical concerns. But unless they maintain a tax practice in addition to teaching, their knowledge will eventually need refreshing as tax laws and professional standards change.

Most current tax textbooks have some coverage of tax practice requirements, including discussions of the IRC and regulatory requirements, Circular 230, and the SSTSs. As supplemental options, textbooks may offer short case problems and research questions that enable the instructor to engage in dialogue on tax ethics issues and resolutions. Instructor guides also offer PowerPoint lecture choices and additional teaching tools. Tax educators who do not have practical tax practice experience might feel the need for additional preparation in this topical area. They may benefit from engaging in experiences that offer them additional exposure to tax ethical issues and challenges. Here are some possible approaches to explore:

• Investigating CPA firm, government-sponsored, or other short-term faculty “internships” in which the faculty member shadows professionals or personally conducts research on ethical tax issues;
• Volunteering for service with organizations that deal with tax ethical issues, responsibilities in tax practice, tax controversies, and other relevant subjects and offer opportunities to work with tax practitioners, including the AICPA, state CPA societies, the American Taxation Association, Tax Executives Institute, and the American Bar Association;
• Working with accounting department advisory boards to develop a relationship with local tax practitioners to learn more about tax ethics issues;
• Finding an experienced tax practitioner or tax educator with whom the faculty member could engage in scholarly work on tax ethics research questions;
• Conducting pedagogical research in tax ethics areas, such as developing cases on tax controversies from judicial and regulatory decisions;
• Conducting behavioral research studying tax ethics questions by involving a variety of groups, including practitioners, students, business people, and the general public;
• Using an existing accounting program alumni network (including school-specific LinkedIn groups) to find alumni with experience in tax ethics and responsibilities who are willing to participate in classroom or other interactions with students;
• Expanding normal professional reading sources to include articles, treatises, newsletters, IRS and Treasury websites, etc., that are dedicated to tax ethics issues; and
• Reviewing the IRS Office of Professional Responsibility censure decisions for Circular 230 practitioners who have been disciplined and the AICPA Professional Ethics Executive Committee decisions regarding disciplined AICPA members.

The expanded learning objectives and related technical content for tax accounting courses have placed a premium on class time in the current tax education environment. Attempting to shoehorn in yet another topical area becomes stressful for both the instructor and the students. Many of the textbooks available for both the Tax I and Tax II courses run to 20 chapters, all the content of which is covered on the CPA Exam. Adding more content, devoting more time to existing content, and even assigning more “self-learning activities” to students involves painful (and, many times, suboptimal) tradeoffs.

Suggestions for enhancing interaction with tax professionals usually include in-class guest lecturing or outside focus groups, perhaps as part of a larger event such as a professional networking activity, a recruiting fair, or an organized meeting of a student group (e.g., Beta Alpha Psi, Accounting Club, or chapter of the Student Center for the Public Trust).

Alternatives to dedicating an entire class period to a tax ethics guest lecturer might include:

• Prerecording short (seven to 10 minutes) “Ethics Matters” interviews with select practitioners. These could be prepared in advance, would likely not change much from one semester to another (depending on new developments), and could be the basis for a weekly in-class or online quiz or even coverage on an exam. This approach flips the script to put the students in control of when and how to view these lectures. An added bonus is that the practitioner (and the licensed educator) would be able to report the time spent on the video as ethics CPE in jurisdictions that allow micro-CPE (many do not, but more are considering this model).
• Using outside tax professionals to act as research mentors to small groups of students and assigning the group a research assignment using tax ethics as the subject matter. Assign tax judicial cases and ask students to determine if there are any professional tax ethics concerns or regulatory or statutory violations. Try to find younger alumni (four to seven years out from graduation) to act as the mentors, thus creating value for the students and the alumni. Report results back to the entire class in a Zoom meeting recorded outside class and include selected content on an examination.
• Coordinating with business ethics professors to include a component on accounting professional ethics in a required ethics course, and use tax and accounting professionals as the guest lecturers on those class days.

The old adage “may you live in interesting times” certainly applies to tax professors and their courses. Integrating the revised SSTSs in the assigned tax curriculum offers the opportunity for thoughtful reflection on the overall approach to teaching tax ethics in the tax curriculum. Tax educators can embrace this challenge with creative thinking and shared intercollegial approaches to better serve students, the accounting profession, and, ultimately, society.

Ethics case resources

The following are sources for accounting ethics cases developed by CPA firms and others. There do not appear to be any tax-specific cases in these resources, but some topic areas might lend themselves to analysis from more than one perspective; e.g., a conflicts-of-interest case could affect independence in an attestation engagement but might also violate tax ethics rules under either SSTS No. 4, Standards for Members Providing Tax Representation Services (see paragraph 4.1.11 and “Ethical Conflicts” [ET section 1.000.020] of the AICPA Code), or under Circular 230, Section 10.29.

Accounting firms

Deloitte Foundation Educator Resources

EY Academic Resource Center

KPMG University Connection

PwC Faculty Resources

PwC University Relations

Other ethics resources

AICPA Accounting Education Center

AICPA Ethics webpage

NASBA Center for the Public Trust

This Way to CPA Academic Resource Hub

IRS Circular 230

AICPA Model Tax Curriculum

Comparison of AICPA and IRC/Treasury ethics standards

The table at this link compares the AICPA Code, SSTSs, Circular 230, and IRC sections regarding various ethical areas. The AICPA Code applies to all CPAs, and if there is a specific related provision in the SSTSs, it is listed. Note that some SSTS references are to explanations and not the basic standards.

Contributors

Thomas J. Purcell III, CPA, J.D., Ph.D., is a professor of accounting and the Begley Chair in Accounting in the Department of Accounting at Creighton University in Omaha, Neb. Susan B. Anders, CPA, CGMA, Ph.D., is the Louis J. and Ramona Rodriguez Distinguished Professor of Accounting at Midwestern State University in Wichita Falls, Texas. For more information about this column, contact thetaxadviser@aicpa.org.