Tax Research

Revised Statements on Standards for Tax Services An Exposure Draft and Invitation to Comment

Revised Statements on Standards for Tax Services: An Exposure Draft and Invitation to Comment  | 1

Contents 2 Explanatory memorandum

2 Introduction

3 SSTS revision timeline

4 Description of combined document

4 Request for comments

4 Comment period

5 Part 1: Exposure draft of proposed revisions to the SSTSs

6 Background

7 Explanation of proposed revisions to the SSTSs

23 Effective date

23 Exposure draft

40 Questions for respondents

41 Part 2: Invitation to Comment

42 Introduction

42 Issue description

42 State of quality management in tax

43 Implementation

44 Questions for respondents

45 Contributors

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Explanatory memorandum Introduction Statements on Standards for Tax Services (SSTSs) are issued by the AICPA Tax Executive Committee (TEC), the senior technical body of the AICPA designated to promulgate standards of tax practice. The General Standards Rule (AICPA, Professional Standards, ET secs. 1.300.001 and 2.300.001) and the Compliance With Standards Rule (AICPA, Professional Standards, ET secs. 1.310.001 and 2.310.001) of the AICPA Code of Professional Conduct require compliance with these standards. Many state boards of accountancy also incorporate the SSTSs as part of their professional rules of conduct for CPAs.

The purpose of this combined document is to solicit feedback, respectively, on:

1. Part 1: Exposure Draft (ED) of proposed revisions to the AICPA's SSTSs that, if adopted, will become effective on Jan. 1, 2024, and

2. Part 2: Invitation to Comment (ITC) on potential approaches to effectively introduce quality management in tax.

In September of 2018, the AICPA TEC approved formation of the SSTS Revision Task Force to update the SSTSs to (1) better reflect the issues and needs of members and the tax practices of today and in the future and (2) ensure the highest ethical standards for members who support the public’s view that CPAs are the premier providers of tax services.

As part of those efforts, the task force:

• Developed a new structure to organize the SSTSs by type of tax work performed,

• Updated the existing standards to better reflect the current and possible future state of the tax profession and

• Drafted three new standards surrounding data protection, reliance on tools and the representation of clients before taxing authorities.

In addition, the task force explored items that will require additional research and investigation and held extensive discussions among its members and multiple committees to explore what, if any, revisions to the SSTSs should be made to address issues of quality management in tax.

Stakeholders are invited to comment on all matters in this ED and ITC. Specific questions related to the ED and ITC are included at the ends of Part 1 and Part 2, respectively.

Revised Statements on Standards for Tax Services: An Exposure Draft and Invitation to Comment | 3

SSTS revision timeline The following graphic demonstrates the anticipated timing of the SSTSs updates and the research and exploration period on quality management in tax.

*Reorganization; Data Protection; Reliance on Tools; Tax Representation

ED & ITC issued

Comment period

Discuss comments Approval Effective

date

**Quality Management

August 2022 – May 2023 Comment evaluation period

May 2023 Final draft approval by Tax Executive Committee

Jan. 1, 2024 Effective date for Revised SSTSs

Further exploration

Outcome TBD

August 2022 – TBD Additional research based on comments

August 2022 Exposure Draft and Invitation to Comment issued

August 2022–December 2022 Comments received through Dec. 31, 2022

Invitation to Comment **

Exposure Draft*

Revised Statements on Standards for Tax Services: An Exposure Draft and Invitation to Comment  | 4

Description of combined document This combined ED and ITC presents the findings and conclusions of the SSTS Revision Task Force as approved by the TEC. The document is divided into two separate sections: Part 1: ED and Part 2: ITC.

The ED presents changes the AICPA proposes to make to the SSTSs. Following consideration of comments received, the changes outlined in the ED, if adopted, are expected to be included in a revised SSTSs document to be approved no later than May 31, 2023, and effective Jan. 1, 2024.

The ITC presents items for consideration that will require additional research and investigation regarding the concept of quality management in tax. Depending on the nature of the comments received in response to the ITC, the AICPA will pursue additional research to determine how and when the SSTSs and/or other guidance may be provided on quality management in tax. At this time, it is not known if and when any changes resulting from the ITC will be implemented.

All comments, whether related to the ED or the ITC, are due no later than Dec. 31, 2022. See further discussion below under request for comments.

Request for comments Respondents are asked to provide comments on the proposed changes and questions listed in the ED and the ITC. Comments are most helpful when they refer to specific questions asked and include the reasons supporting the respondent’s view.

When a respondent agrees with proposals in the ED or ITC, it will be helpful for the AICPA to be made aware of this view.

Written comments on the ED and ITC will become part of the public record of the AICPA and will be available on the AICPA’s website after Dec. 31, 2022. The AICPA will consider all responses received on or before Dec. 31, 2022.

Please submit comments via our online form. Alternatively, you may email your submission to: [email protected].

Reponses may be submitted in Word format or directly in the body of the email with an appropriate signature (name, firm). Unless the respondent explicitly permits otherwise, comments will be posted without the sender’s email address. Respondents may also submit a PDF version of their response for posting to the AICPA website.

Comment period The comment period for this ED and ITC ends Dec. 31, 2022.

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Part 1: Exposure draft of proposed revisions to the SSTSs

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Background The SSTSs have their origin in the Statements on Responsibilities in Tax Practice (SRTPs), which provided a body of advisory opinions on good tax practice. The guidelines as originally set forth in the SRTPs became more important than many members had anticipated when the guidelines were issued. The courts, the IRS, state accountancy boards and other professional organizations recognized and relied on the SRTPs as the appropriate articulation of professional conduct in a CPA’s tax practice. The SRTPs became de facto enforceable standards of professional practice because state disciplinary organizations and courts regularly held CPAs accountable for failure to follow the guidelines set forth in the SRTPs.

The SRTPs were originally issued between 1964 and 1977. The first nine SRTPs and an introduction were combined and promulgated in 1976; the tenth SRTP was issued in 1977. The original SRTPs concerning the CPA’s responsibility to sign the tax return (SRTP No. 1, Signature of Preparers, and No. 2, Signature of Reviewer: Assumption of Preparer’s Responsibility) were withdrawn in 1982 after Treasury Department regulations were issued adopting substantially the same standards for all tax return preparers. The sixth and seventh SRTPs, concerning the responsibility of a CPA who becomes aware of an error, were revised in 1991. The first interpretation of the SRTPs, Interpretation No. 1-1, Realistic Possibility Standard, was approved in December 1990.

Given the level of reliance on the SRTPs by state disciplinary organizations and courts, the AICPA’s TEC concluded it was appropriate to issue tax practice standards that would become a part of the AICPA’s Professional Standards. At its July 1999 meeting, the AICPA Board of Directors approved support of the executive committee’s initiative and placed the matter on the agenda of the October 1999 meeting of the AICPA’s governing Council. On Oct. 19, 1999, Council approved designating the TEC as a standard-setting body, thus authorizing that committee to promulgate standards of tax practice. As a result, the original SSTSs, largely mirroring the SRTPs, were issued in August 2000. The SSTSs and Interpretation No. 1-1,

Realistic Possibility Standard, of SSTS No. 1, Tax Return Positions, superseded and replaced the SRTPs and their Interpretation No. 1-1, effective Oct. 31, 2000.

Although the number and names of the SSTSs, and the substance of the rules contained in each of them, remained the same as in the SRTPs, the language was revised to both clarify and reflect the enforceable nature of the SSTSs. In addition, because the applicability of these standards is not limited to federal income tax practice (as was the case with the SRTPs), the language was changed to indicate the broader scope. In 2003, in connection with the tax shelter debate, SSTS Interpretation No. 1-2, Tax Planning, of SSTS No. 1 was issued to clarify a member’s responsibilities in connection with tax planning; that interpretation became effective Dec. 31, 2003. These two interpretations were initially updated in 2010. On Aug. 15, 2011, the TEC adopted the updated Interpretation 1-1, now titled, Reporting and Disclosure Standards, and 1-2, Tax Planning, effective Jan. 31, 2012.

When the original SSTSs were issued, an effort was made to keep to a minimum any changes in the language of the SSTSs from that of the predecessor SRTPs. This was done to alleviate concerns regarding the enforceability of standards that differed from the SRTPs under which members had been practicing. Since the issuance of the original SSTSs, members have asked for clarification on certain matters, such as the duplication of the language in SSTS No. 6, Knowledge of Error: Return Preparation, and No. 7, Knowledge of Error: Administrative Proceedings. Also, certain changes in federal and state tax laws have raised concerns regarding the need to revise SSTS No. 1. As a result, in 2008, the original SSTS Nos. 1–8 were updated, effective Jan. 1, 2010. The original SSTS Nos. 6–7 were combined into the revised SSTS No. 6, Knowledge of Error: Return Preparation and Administrative Proceedings. The original SSTS No. 8, Form and Content of Advice to Taxpayers, was renumbered SSTS No. 7. In addition, various revisions were made to the language of the original SSTSs. The last significant updates to the content of the SSTSs were effective Jan. 1, 2010.

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In 2018, changes were made to the SSTSs to bring the references to the AICPA Code of Professional Conduct into conformity with the AICPA ethics codification.

In September of 2018, the TEC approved the formation of a task force to update the SSTSs. The task force is composed of AICPA Tax Section members representing diverse interests including small and sole practitioner firms, Private Company Practice Section (“PCPS”) members, medium and large CPA firms and academia. The task force developed and presented the updated SSTSs to the TEC for their approval.

Explanation of proposed revisions to the SSTSs The goals of the revisions of the SSTSs are to ensure that the standards are better aligned to reflect the current state of the tax profession and to address the emerging needs of today’s members. Proposed updates to the standards include:

• Reorganization of the SSTSs by type of tax work performed; and

• Promulgation of three new standards surrounding data protection, reliance on tools and the representation of tax clients before taxing authorities.

Reorganization Included in its efforts to update the SSTSs, the task force developed a new practice-based organizational structure for the standards. Under the new organizational framework:

• Standard 1 includes general tax guidance with broad applicability (includes new standards on data protection and reliance on tools)

• Standard 2 includes tax return preparation guidance

• Standard 3 includes guidance specific to providing tax advice

• Standard 4 includes guidance for members providing tax representation services (new standard)

The task force believed that the existing standards were largely applicable to all types of tax services and were drafted to be general in nature, to allow for their use, no matter what type of tax service was being delivered. At the time of the drafting of the original standards, most of the tax services being provided were compliance-oriented and involved tax return preparation.

This revision project has reorganized the standards so that most of the existing standards have been incorporated into either general standards (Standard 1) or compliance standards (Standard 2). Because the proposed new standards around data protection and reliance on tools are applicable to different types of tax services, they were also included with the general standards. The existing standard as related to tax advisory services (Standard 3) and the new standard related to representation services (Standard 4) were determined to be unique and have been separately stated. This alignment is intended to assist members in applying standards to specific tax practice situations and to help them understand the scope and expectations of these standards.

Data protection The subject of the protection of taxpayer data has exponentially grown over time and has gained global importance as technology now allows for the transfer and storage of large amounts of confidential financial information with the simple press of a button. In many cases, this data is never seen in a hard copy format. The task force believed it was important to implement a standard which ensures members adopt reasonable safeguards to protect taxpayer data, both in electronic format and otherwise.

The task force also recognized that constant advances in technology make it challenging to identify any one set of standards with broad applicability across all tax practices. The purpose of the new standard is to expressly state a member’s responsibility to make a reasonable effort to safeguard confidential client information. It was broadly written to consider the variability among member practices as well as continuingly changing privacy laws and technology.

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Reliance on tools Tax is not a static subject, given regular changes resulting from various legislative and regulatory amendments, and judicial decisions. However, over time, these changes have become more frequent, extensive and complex, with related authoritative guidance from the taxing authorities often delayed or incomplete. This situation often leaves members struggling to (1) provide clients or firm departments the necessary information to allow the correct and accurate preparation and filing of their respective tax returns and (2) plan for future events to efficiently manage potential tax liabilities.

Members have long relied on tools of various types to allow them to accurately interpret a particular provision of the tax code. However, in today’s tax practice environment, members rely on technology to provide services more than at any point in history. That trend will continue with the introduction of artificial intelligence, data science, quantum computers and other developing technologies.

Currently, tax professionals do not have a professional standard relating specifically to reliance on these tools when providing services. The task force identified the need for a standard which protects members by

defining when they may reasonably rely on tools of all types used in the performance of tax services.

Tax representation As previously noted, the best practices that were the forerunner of the existing SSTSs were written over fifty years ago. At that time, tax preparation was the overwhelming service that was provided by tax professionals. Since then, tax practices have expanded to provide a wide variety of services including tax representation services. The task force believed the continuing growth in the number of CPA firms providing tax representation services, in various venues, involving different types of taxes, obligated the development of this proposed standard.

Another goal of the task force was to avoid proposing standards which might appear duplicative of other existing standards in effect today. While it is true that CPAs who provide tax services are bound by existing standards related to representation, including Circular 230, such rules may be limited in scope (e.g., Circular 230 only governs representation before the Internal Revenue Service).

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Mapping of current standards to proposed standards The following table maps the current SSTSs to the reorganized SSTSs and provides additional details related to the proposed revisions.

Table Mapping: Current SSTSs to Proposed SSTSs

SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

Preface Preface (modified) This now includes extant ongoing process section with revisions.

History The existing history and updates have been relocated and included in the background section of the combined ED/ITC document.

Ongoing process This content is revised and relocated into the preface section.

Definitions (NEW) The definitions section was added at the beginning as these terms are used throughout the standards. There is no change to the existing definition of “taxpayer” or “tax position” from extant standards. The definition of “member” is added to reinforce the applicability of standards.

SSTS No. 1, Tax Return Positions SSTS No. 1, General Standards for Members Providing Tax Services (NEW)

This is a new standard specifically addressing general matters applicable to all tax services. It consolidates into a single standard guidance from extant SSTS Nos. 1 and 5 along with adding proposed new standards on data protection and reliance on tools.

1.1. Advising on Tax Positions

Introduction Introduction

No. 1 Introduction – ¶1 1.1.1. (modified) This adds reference to tax positions mentioned in the new SSTS No. 2. The definition of tax return position and taxpayer is relocated to the definitions section.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

No. 1 Introduction – ¶2 1.1.2.

No. 1 Introduction – ¶3 1.1.3. (modified) This deletes reference to signing tax returns since this is now covered in the new SSTS No. 2.

Statement Statement

No. 1 Statement – ¶4 This is relocated to proposed 1.1.5.

1.1.4. (NEW) This expands on the definition of tax position as stated in the definitions section.

No. 1 Statement – ¶5 1.1.5. (modified) This includes extant ¶4 and adds a new reference to written standards of other taxing authorities. If the position’s likelihood exceeds the “realistic possibility of success” standard, then these other standards should be followed.

No. 1 Statement – ¶6 This is relocated to proposed 2.1.7.

No. 1 Statement – ¶7 This is relocated to proposed 2.1.8.

1.1.6. (NEW) This adds reference to due diligence and professional judgement when advising on tax positions.

No. 1 Statement – ¶8 1.1.7. (modified) This deletes reference indicating that the member has a responsibility to be an advocate for a taxpayer.

Explanation Explanation

No. 1 Explanation – ¶9 1.1.8. (modified) This deletes reference to signing returns but keeps the rest of extant paragraph. This also relocates extant paragraph with reference to signing returns to proposed 2.1.10.

No. 1 Explanation – ¶10 This is relocated to proposed 2.1.11.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

No. 1 Explanation – ¶11 1.1.9.

No. 1 Explanation – ¶12 1.1.10.

No. 1 Explanation – ¶13 1.1.11.

No. 1 Explanation – ¶14 This is relocated to proposed 2.1.14.

No. 1 Explanation – ¶15 1.1.12.

No. 1 Explanation – ¶16 This is relocated to proposed 2.1.3.

SSTS No. 2, Answers to Questions on Returns

2.2. Tax Return Questions

Introduction Introduction

No. 2 Introduction – ¶1 2.2.1.

Statement Statement

No. 2 Statement – ¶2 2.2.2. (modified) This adds reference to acts required before signing as a preparer.

Explanation Explanation

No. 2 Explanation – ¶3 2.2.3.

No. 2 Explanation – ¶4 2.2.4.

No. 2 Explanation – ¶5 2.2.5.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

No. 2 Explanation – ¶6 2.2.6. (modified) This adds the requirement to advise a client if an omission of an answer may cause the return to be incomplete or result in penalty assessment.

No. 2 Explanation – ¶7 2.2.7.

SSTS No. 3, Certain Procedural Aspects of Preparing Returns

2.3. Reliance on Information from Others

Introduction Introduction

No. 3 Introduction – ¶1 2.3.1.

Statement Statement

No. 3 Statement – ¶2 2.3.2.

No. 3 Statement – ¶3 2.3.3. (modified) This deleted the reference to the example, “such as taxpayer maintenance of books and records or substantiating documentation to support the reported deduction or tax treatment.”

No. 3 Statement – ¶4 2.3.4. (modified) This adds reference to other sources including, but not limited to, the tax return of another taxpayer.

Explanation Explanation

No. 3 Explanation – ¶5 2.3.5.

No. 3 Explanation – ¶6 2.3.6.

No. 3 Explanation – ¶7 2.3.7.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

No. 3 Explanation – ¶8 2.3.8.

No. 3 Explanation – ¶9 2.3.9.

SSTS No. 4, Use of Estimates 2.4. Use of Estimates

Introduction Introduction

No. 4 Introduction – ¶1 2.4.1. (modified) This added that responsibility of the data lies with the taxpayer.

Statement Statement

No. 4 Statement - ¶2 2.4.2. (modified) This added reference to estimates provided by others but authorized by the taxpayer.

Explanation Explanation

No. 4 Explanation - ¶3 2.4.3.

No. 4 Explanation - ¶4 2.4.4.

No. 4 Explanation - ¶5 2.4.5. (modified) This adds reference that a member should inform a taxpayer of his or her duty to maintain records that support the return.

No. 4 Explanation – ¶6 2.4.6.

No. 4 Explanation – ¶7 2.4.7.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

SSTS No. 5, Departure from a Position Previously Concluded in an Administrative Proceeding for Court Decisions

2.5. Departure from Previous Positions

Introduction Introduction

No. 5 Introduction – ¶1 2.5.1.

No. 5 Introduction – ¶2 2.5.2.

No. 5 Introduction – ¶3 2.5.3.

Statement Statement

No. 5 Statement – ¶4 2.5.4. (modified) This added reference to tax return positions in proposed 2.1.

Explanation Explanation

No. 5 Explanation – ¶5 2.3.5. (modified) This added a statement regarding “unless the taxpayer is contractually bound to a particular tax treatment.”

No. 5 Explanation – ¶6 2.5.6.

SSTS No. 6, Knowledge of Error: Return Preparation and Administrative Proceedings

1.2. Knowledge of Errors

Introduction Introduction

No. 6 Introduction – ¶1 1.2.1.

No. 6 Introduction – ¶1 1.2.2.

No. 6 Introduction – ¶2 1.2.3.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

1.2.4. (NEW) This references that taxing authorities may impose specific standards in connection with errors discovered during tax engagements.

No. 6 Introduction – ¶3 1.2.5.

Statement Statement

No. 6 Statement – ¶4 1.2.6. (modified) This adds reference to errors in an administrative filing. This formally references proposed 3.1.2. related to form advice to be provided.

No. 6 Statement – ¶5 1.2.7. (modified) This adds reference to prior year returns.

No. 6 Statement – ¶6 This is relocated to proposed 1.2.9.

1.2.8. This repeats extant ¶4 and reinforces the need to review the continuance of the client relationship if the client refuses to correct a previously discovered error.

1.2.9. This is relocated from extant ¶6.

Explanation Explanation

No. 6 Explanation – ¶7 1.2.10. This formally references proposed 3.1.2. related to form advice to be provided and adds extant ¶14.

No. 6 Explanation – ¶8 1.2.11.

No. 6 Explanation – ¶9 1.2.12.

1.2.13. (NEW) This references a member’s responsibility to both the taxpayer and tax system.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

No. 6 Explanation – ¶10 1.2.14.

No. 6 Explanation – ¶11 1.2.15.

No. 6 Explanation – ¶12 1.2.16.

No. 6 Explanation – ¶13 1.2.17.

No. 6 Explanation – ¶14 This is relocated to proposed 1.2.10.

1.3. Data Protection (NEW) This is a new standard regarding making reasonable efforts to safeguard taxpayer data.

Introduction This states responsibilities for data protection while performing taxpayer services.

1.3.1.

1.3.2.

1.3.3.

Statement Efforts were made to have statements as limited as possible to make them reasonable but still enforceable.

1.3.4.

1.3.5.

Explanation Multiple examples are provided to explain reasonable efforts to safeguard taxpayer data.

1.3.6.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

1.3.7.

1.3.8.

1.3.9.

1.3.10.

1.3.11.

1.3.12.

1.3.13.

1.4. Reliance On Tools (NEW) This is a new standard regarding the allowance of members to rely on multiple types of resources in providing tax services.

Introduction The definition of tools is provided.

1.4.1.

1.4.2.

Statement Professional judgement must be used in reliance on tools. The guidance is intentionally broad in scope.

1.4.3.

1.4.4.

Explanation Tools should be used to improve efficiency and enhance a member’s understanding of an issue; tools cannot supplant professional judgement.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

1.4.5.

1.4.6.

1.4.7.

1.4.8.

SSTS No. 2, Standards for Members Providing Tax Compliance Services, Including Tax Return Positions

This new standard specifically addresses tax compliance services and consolidates into a single standard guidance from extant SSTS Nos. 1–5.

2.1. Tax Return Positions (NEW)

Introduction

2.1.1. This replicates extant SSTS No. 1, ¶1 but removes definitions of tax return position and taxpayer, since these have been relocated to the definitions section.

2.1.2. (NEW) This adds reference to tax positions mentioned in proposed SSTS No. 1 and proposed SSTS No. 2.3.

2.1.3. This replicates extant SSTS No. 1, ¶16.

2.1.4. This replicates extant SSTS No. 1, ¶2.

Statement

2.1.5. (NEW) This adds reference to the definition of tax position in proposed 1.1.4.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

2.1.6. This includes extant SSTS No. 1, ¶4 and ¶5 and adds reference to written standards of other taxing authorities. If they exceed the “realistic possibility of success” standard, then these other standards should be followed.

2.1.7. This replicates extant SSTS No. 1, ¶6.

2.1.8. This replicates extant SSTS No. 1, ¶7.

2.1.9. (NEW) This adds guidance related to tax positions proposed by other parties, as referenced in proposed 2.3.

Explanation

2.1.10. This replicates extant SSTS No. 1,¶9.

2.1.11. (modified) This replicates extant SSTS No. 1, ¶10 but deletes the statement referencing the fact that the standards that apply to a taxpayer may differ from those that apply to a member.

2.1.12. This replicates extant SSTS No. 1, ¶12.

2.1.13. This replicates extant SSTS No. 1, ¶13.

2.1.14. This replicates extant SSTS No. 1, ¶14.

2.1.15. This replicates extant SSTS No. 1, ¶15.

SSTS No. 7, Form and Content of Advice to Taxpayers

SSTS No. 3, Standards for Members Providing Tax Consulting Services

Introduction Introduction

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

No. 7 Introduction – ¶1 3.1.1. (modified) This sentence was deleted: “The statement does not, however, cover a member’s responsibilities when the expectation is that the advice rendered is likely to be relied on by parties other than the taxpayer.”

Statement Statement

No. 7 Statement – ¶2 3.1.2. (modified) This added reference to the definition of competence under Circular 230, Section 10.35.

No. 7 Statement – ¶3 3.1.3. (modified) This added reference to tax return positions in proposed 2.1.

No. 7 Statement – ¶4 3.1.4. (modified) This adds reference to the requirement of a member to communicate subsequent developments if he or she was engaged to implement tax advice previously provided or is engaged to specifically do so.

Explanation Explanation

No. 7 Explanation – ¶5 3.1.5.

No. 7 Explanation – ¶6 3.1.6.

No. 7 Explanation – ¶7 3.1.7.

No. 7 Explanation – ¶8 3.1.8.

No. 7 Explanation – ¶9 3.1.9.

No. 7 Explanation – ¶10 3.1.10.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

No. 7 Explanation – ¶11 Deleted.

3.1.11. (NEW) This adds guidance about if a member is advising on a position but is not engaged to prepare or sign a tax return, then as long as the member advises the taxpayer on the appropriate disclosure, the standard is satisfied.

3.1.12. (NEW) This adds guidance about if a member believes that a taxpayer penalty may be assessed, the member should advise the taxpayer about the possible penalty and opportunities for penalty avoidance with appropriate disclosure. This also states that it is the taxpayer’s responsibility to decide whether and how to disclose.

No. 7 Introduction – ¶1 3.1.13. This added a sentence that was deleted in proposed 3.1.1. related to advice likely to be relied on by parties other than the taxpayer.

SSTS No. 4, Standards for Members Providing Tax Representation Services (NEW)

This is a new standard on taxpayer representation which focuses on the representation relationship.

Introduction This limits the standard to representations which require a power of attorney. It also references guidance from other sources that must be adhered to.

4.1.1.

4.1.2.

Statement This provides guidance on the steps a member needs to address throughout the course of the representational relationship.

4.1.3.

4.1.4.

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SSTSs Nos. 1–7 (Effective Jan. 1, 2010, and updated April 30, 2018, to include revised AICPA Code of Professional Conduct citations)

Proposed SSTSs No. 1–4 (Effective no earlier than Jan. 1, 2024)

Notes related to proposed changes

4.1.5.

4.1.6.

4.1.7.

4.1.8.

Explanation This addresses competency and other subject areas that members need to be familiar with during the representation engagement, including those imposed by the taxing authorities as well as those included in the AICPA’s Code of Professional Conduct.

4.1.9.

4.1.10.

4.1.11.

Contributors Members of the TEC, Tax Practice Responsibilities Committee, SSTS Revision Task Force and AICPA staff who participated in the issuance of the ED and the ITC are listed. Similar information was provided in the extant standards without a separate heading.

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Effective date If issued as final, the effective date for these finalized SSTSs will be no earlier than Jan. 1, 2024.

Exposure draft Proposed Statements on Standards for Tax Services

PREFACE

Introduction Standards are the foundation of a profession. The AICPA aids its members in fulfilling their ethical responsibilities by instituting and maintaining standards against which their professional performance can be measured. Compliance with professional standards of tax practice also reaffirms the public’s awareness of the professionalism that is associated with CPAs as well as the AICPA.

This publication sets forth enforceable tax practice standards for members of the AICPA, known as the Statements on Standards for Tax Services (SSTSs or statements). These statements apply to all members providing tax services regardless of the jurisdictions in which they practice. Interpretations of these statements may be issued as guidance to assist in understanding and applying the statements. Any such interpretations have the same authority as defined in the AICPA Code of Professional Conduct, ET sec. 0.100.020, Interpretations and Other Guidance.

The SSTSs and their interpretations are intended to complement other standards of tax practice, such as Treasury Department Circular No. 230, Regulations Governing Practice before the Internal Revenue Service (Circular 230), penalty provisions of the Internal Revenue Code and state boards of accountancy rules.

The SSTSs are written in as simple and objective a manner as possible. However, by their nature, practice standards provide for an appropriate range of behavior and need to be interpreted to address a broad range of personal and professional situations. The SSTSs recognize this need by, in some sections, providing

relatively subjective rules and by leaving certain terms undefined. These terms are generally rooted in tax concepts and, therefore, should be readily understood by tax practitioners. Accordingly, enforcement of the SSTSs is under the General Standards Rule (AICPA, Professional Standards, ET secs. 1.300.001 and 2.300.001), and the Compliance with Standards Rule (AICPA, Professional Standards, ET secs. 1.310.001 and 2.310.001) of the AICPA Code of Professional Conduct, and will be undertaken on a case-by-case basis. Members are expected to comply with these standards.

Ongoing process The following SSTSs and any interpretations issued thereunder reflect the AICPA’s standards of tax practice and delineate members’ responsibilities to taxpayers, the public, the government and the profession. The statements are intended to be part of an ongoing process of articulating standards of tax practice for members. These standards are subject to change as necessary or appropriate to address changes in the tax law or other developments in the tax practice environment.

To accommodate the complexity and rapid change inherent in the tax practice environment, the AICPA issues supplementary guidance to the SSTSs and interpretations in various forms, such as frequently asked questions (FAQs) and practice guides. Such documents are not rules, regulations or official guidance of the Tax Executive Committee (TEC) issued pursuant to its rule-making authority and, therefore, are not authoritative guidance.

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Members are encouraged to assess the adequacy of their practices and procedures for providing tax services in conformity with these standards. This process will vary according to the size of the practice and the nature of tax services performed.

The TEC promulgates the SSTSs and their interpretations. Acknowledgment is also due to the many members who have devoted their time and efforts over the years to developing and revising the AICPA’s standards.

Form of standards Each statement is divided into subsections that address a variety of aspects related to tax services. Although some statements have several subsections that address different aspects of tax services, the subsections should be applied as essential elements of the entire statement generally related to all tax services.

• For ease of analysis, each subsection contains an introduction and an explanation section.

• In addition to the AICPA, applicable tax authorities may impose specific reporting and disclosure standards with regard to advising on tax return positions or preparing or signing tax returns. These standards can vary between taxing authorities and by type of tax.

• A member should refer to the current version of Internal Revenue Code Sec. 6694, Understatement of taxpayer’s liability by tax return preparer, the most

recent version of Circular 230 and other applicable tax authority guidance to determine the reporting and disclosure standards that are applicable to the service being provided.

Definitions All terms herein are as defined in the AICPA Code of Professional Conduct except as noted below.

• Taxpayer: A taxpayer is a client, a member’s employer or any other third-party recipient of tax services.

• Tax position: A tax position is (i) a position reflected on a tax return on which a member has specifically advised a taxpayer or (ii) a position about which a member has knowledge of all materials facts and, on the basis of those facts, has concluded whether the position is appropriate.

• Member: Consistent with the AICPA Code of Professional Conduct, ET sec. 0.100; unless otherwise noted, the SSTSs apply to all members providing tax services.

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Statement on Standards for Tax Services No. 1, General Standards for Members Providing Tax Services

1.1. Advising on tax positions

Introduction 1.1.1. This statement defines tax positions and sets

forth the general standards for members advising on tax positions. Standards related to tax return positions are contained in Statement on Standards for Tax Services No. 2, Standards for Members Providing Tax Compliance Services, Including Tax Return Positions.

1.1.2. This statement also addresses a member’s obligation to advise a taxpayer of relevant tax disclosure responsibilities and potential penalties.

1.1.3. In addition to the AICPA, applicable taxing authorities may impose specific reporting and disclosure standards with regard to advising on tax positions. These standards can vary between taxing authorities and by type of tax.

Statement 1.1.4. A tax position is a conclusion reached when

applicable tax law, regulations, case law or other regulatory or recognized guidance is applied to a particular transaction, a specific set of facts and circumstances or a controversy.

1.1.5.  A member should determine and comply with the standards, if any, that are imposed by the applicable taxing authority with respect to advising on tax positions.

a. If the applicable taxing authority has no promulgated standards with respect to advising on tax positions, a member should not advise a taxpayer to take a tax position unless the member has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.

b. If the applicable taxing authority has written standards that exceed the realistic possibility standard described in 1.1.5.a. above, the member should comply with those taxing authority standards.

c. Notwithstanding section 1.1.5.a. and b., a member may, as permitted by a taxing authority, advise a taxpayer to take a tax position where the member (i) concludes that there is a reasonable basis for the position and (ii) advises the taxpayer to appropriately disclose that position.

1.1.6. A member should exercise due diligence and professional judgment when advising on tax positions for a particular situation. Such diligence and judgment should inform the scope of the member’s inquiry undertaken in the authoritative pronouncements for the particular tax in question and, where appropriate, in professional and other literature related to the issues in question.

1.1.7. When advising on a tax position, a member has the right to be an advocate for the taxpayer with respect to a position satisfying the aforementioned standards.

Explanation 1.1.8. The AICPA and various taxing authorities

impose specific standards with respect to tax positions. In a given situation, the standards, if any, imposed by the applicable taxing authority may be higher or lower than the standards set forth in section 1.1.5. A member is to comply with the standards, if any, of the applicable taxing authority; if the applicable taxing authority has no standards or if its standards are lower than the standards set forth in section 1.1.5., the standards set forth in section 1.1.5. will apply.

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1.1.9. In addition to a duty to the taxpayer, a member has a duty to the tax system. However, it is well established that the taxpayer has no obligation to pay more taxes than are legally owed, and a member has a duty to the taxpayer to assist in achieving that result or any other legally valid tax outcome the taxpayer desires. The standards contained in section 1.1.5. recognize a member’s responsibilities to both the taxpayer and the tax system.

1.1.10.  In reaching a conclusion concerning whether a given standard in section 1.1.5. has been satisfied with respect to a particular jurisdiction, a member may consider a well-reasoned construction of the applicable statute and related regulations of that jurisdiction, if any, well-reasoned articles or treatises or guidance issued by the applicable taxing authority, regardless of whether such sources would be treated as authority under Internal Revenue Code Section 6662, Imposition of accuracy-related penalty on underpayments, and the regulations thereunder. A position would not fail to meet these standards merely because the position is later abandoned for practical or procedural considerations during an administrative hearing or in the litigation process.

1.1.11.  If a member has a good-faith belief that more than one tax position meets the standards set forth in section 1.1.5., a member’s advice concerning alternative acceptable positions may include a discussion of the likelihood that each such position might or might not be challenged by the taxing authority.

1.1.12.  If particular facts and circumstances lead a member to believe that a taxpayer penalty might be asserted, the member should so advise the taxpayer and should discuss with the taxpayer the opportunity, if any, to avoid such penalty by appropriate disclosure to the taxing authority. A member should also advise the taxpayer it is their responsibility to decide whether and how to disclose.

1.2. Knowledge of errors

Introduction 1.2.1. This statement sets forth the applicable

standards for a member who becomes aware of (a) an error in a taxpayer’s previously filed tax return; (b) an error in a return that is the subject of an administrative proceeding, such as an examination by a taxing authority or an appeals conference; or (c) a taxpayer’s failure to file a required tax return.

1.2.2. As used herein, the term error includes any position, omission or method of accounting that, at the time a position is advised or a return is filed, fails to meet the standards set out in 1.1, Advising on Tax Positions, or 2.1, Tax Return Positions. The term error also includes a position taken on a prior year’s return that no longer meets these standards due to legislation, judicial decisions or administrative pronouncements having retroactive effect. However, an error does not include an item that has an insignificant effect on the taxpayer’s tax liability. The term administrative proceeding does not include a criminal proceeding.

1.2.3. This statement applies whether or not the member prepared or signed a return that contains the error.

1.2.4. In addition to the AICPA, applicable taxing authorities may impose specific standards with regard to errors discovered during the provision of tax services by a member. These standards can vary between taxing authorities and by type of tax.

1.2.5. Special considerations may apply when a member has been engaged by legal counsel to provide assistance in a matter relating to a taxpayer.

Statement 1.2.6. A member should inform a taxpayer promptly

upon becoming aware of the taxpayer’s failure to file a required return, an error in a previously filed return, an error in a return that is the subject of an administrative proceeding, an error in an

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administrative filing (such as a ruling request, accounting method change, etc.) or an error in advice provided. A member also should advise the taxpayer of the potential consequences of the error and advise on corrective measures to be taken. Such advice may be given orally. See also section 3.1.2. regarding the documentation of advice.

1.2.7. If a member prepares a tax return for the current or a prior tax year, and the taxpayer has not taken appropriate action to correct an error related to a tax return position in a tax return for a prior year, the member should consider whether to withdraw from preparing the current return and whether to continue a professional or employment relationship with the taxpayer. If the member does prepare the current year return, the member should take reasonable steps to ensure that the error is not repeated.

1.2.8. A member is not allowed to inform a taxing authority of an error without the taxpayer’s permission, except when required by law. Members also should consider whether they can continue a professional relationship with a taxpayer who refuses to properly mitigate a discovered error.

1.2.9. If a member is representing a taxpayer in an administrative proceeding with respect to a return that contains an error of which the member is aware, the member should request the taxpayer’s agreement to disclose the error to the taxing authority. Lacking such agreement, the member should consider whether to withdraw from representing the taxpayer in the administrative proceeding and whether to continue a professional or employment relationship with the taxpayer.

Explanation 1.2.10. If a member becomes aware of an error

while performing tax services, the member’s responsibility is to advise the taxpayer of the existence of the error. The member should advise the taxpayer of the error and the potential consequences, and advise on corrective measures to be taken, if any. If the

member does not prepare the taxpayer’s tax return or was not the provider of the advice, the member may instead advise that the error be discussed with the taxpayer’s tax return preparer or advisor. Similarly, when representing the taxpayer before a taxing authority in an administrative proceeding with respect to a return containing an error of which the member is aware, the member should advise the taxpayer to disclose the error to the taxing authority and of the potential consequences of not disclosing the error. Refer to section 3.1.2. for considerations regarding the decision to provide such advice in oral or written form.

1.2.11. It is the taxpayer’s responsibility to decide whether to correct an error. If the taxpayer does not correct an error, a member should consider whether to withdraw from the engagement and whether to continue a professional or employment relationship with the taxpayer. Although recognizing that the taxpayer may not be required by statute to correct an error by filing an amended return, a member should consider whether a taxpayer’s decision not to file an amended return or otherwise correct an error may predict future behavior that might require termination of the relationship.

1.2.12. Once the member has obtained the taxpayer’s consent to disclose an error in an administrative proceeding, the disclosure should not be delayed to such a degree that the taxpayer or member might be considered to have failed to act in good faith or to have, in effect, provided misleading information. In any event, disclosure should be made before the conclusion of the administrative proceeding.

1.2.13. Members have a responsibility to both the taxpayer and the tax system. Discovery of an error in an administrative proceeding or filing, such as a ruling request, might negate the effect of the ruling if not disclosed to the authority. Failure to comply with statutory or regulatory compliance requirements impact not only the taxpayer, but also the integrity of the entire tax system.

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1.2.14. A conflict between the member’s interests and those of the taxpayer may be created by, for example, the potential for violating Code of Professional Conduct, Confidential Client Information Rule (AICPA, Professional Standards, ET sec. 1.700.001) (relating to the member’s confidential client relationship); the tax law and regulations; or laws on privileged communications, as well as by the potential adverse impact on a taxpayer of a member’s withdrawal. Therefore, a member should consider consulting with his or her own legal counsel before deciding upon providing advice to the taxpayer and whether to continue a professional or employment relationship with the taxpayer.

1.2.15. If a member believes that a taxpayer may face possible exposure to allegations of fraud or other criminal misconduct, the member should advise the taxpayer to consult with an attorney before the taxpayer takes any action.

1.2.16. If a member decides to continue a professional or employment relationship with the taxpayer and is requested to prepare a tax return for a year subsequent to that in which an error occurred, the member should take reasonable steps to ensure that the error is not repeated. If the subsequent year’s tax return cannot be prepared without perpetuating the error, the member should consider withdrawal from the return preparation. If a member learns that the taxpayer is using an erroneous method of accounting and it is past the due date to request permission to change to a method meeting the standards of section 2.1.1., the member may sign a tax return for the current year, providing the tax return includes appropriate disclosure of the use of the erroneous method.

1.2.17. Whether an error has no more than an insignificant effect on the taxpayer’s tax liability is left to the professional judgment of the member based on all the facts and circumstances known to the member. In judging whether an erroneous method of accounting has more than an insignificant effect, a member

should consider the method’s cumulative effect, as well as its effect on the tax advice provided, current year’s tax return or the tax return that is the subject of the administrative proceeding.

1.3. Data protection

Introduction 1.3.1. This statement sets forth the applicable

standards for a member’s responsibilities related to the protection of taxpayer data obtained in the course of rendering services for a taxpayer.

1.3.2. A member’s responsibility to protect taxpayer information is a well-established professional responsibility. The increasing use of technology by individuals and businesses, together with a growing awareness and attention of data breaches and identity theft, has resulted in a growing sensitivity towards and need for a focus on the protection of taxpayer data, including electronic data.

1.3.3. This standard complements, and does not alter or replace, the confidentiality standards established in the AICPA Code of Professional Conduct 1.700.001, Confidential Information Rule and the Interpretations thereunder.

Statement 1.3.4. A member should make reasonable efforts

to safeguard taxpayer data, including data transmitted or stored electronically.

1.3.5. A member should consider applicable privacy laws when collecting and storing taxpayer data.

Explanation 1.3.6. The statement uses the term “reasonable,”

knowing that actions or behaviors considered “reasonable” may differ over time, among members and from firm to firm based on size and resources. The absence of any bright-line rules was purposeful, allowing for changing technology, laws, guidance and practice.

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1.3.7. Appropriate safeguards should be implemented to protect both member and taxpayer data stored within the member’s information systems platform. Appropriate safeguards should be based on current recommended practices, and may, for example, include the installation and use of commercial security software to prevent unwanted or unauthorized access to information, encryption of data that is sent between multiple parties over the internet, the use of secure networks, strong password policies, use of firewalls and use of secure data sharing/collaboration platforms.

a. A member should consider other industry standards, such as the AICPA’s Privacy Management Framework and Trust Services Criteria when developing a privacy program.

1.3.8. Members may use electronic tools owned and hosted by others, such as tax return preparation software, or may outsource certain tasks, such as converting paper documents to electronic information. Members should take reasonable efforts to confirm that taxpayer information properly shared with others in the course of providing a service is appropriately protected.

1.3.9. A member should take reasonable steps to limit the amount of taxpayer confidential information in the member’s files. For example, the member should collect only the information necessary to perform the services for which the member is being engaged or otherwise approved to perform by the taxpayer, returning or redacting any confidential taxpayer information unnecessary to complete the services. This may also include insisting that any personally identifiable information (PII) or personal health information (PHI) be masked/anonymized prior to receipt by the member. Additionally, adherence to appropriate document retention and destruction policies can help to ensure that taxpayer data is properly removed from a member’s information systems once it is no longer needed under the respective statute of limitations or the member’s document retention policies.

1.3.10. In developing safeguards, members should also consider steps to be taken in the event of a data breach, including compliance with notification obligations. For example, the Federal Trade Commission (FTC) provides recommendations that include securing systems and fixing issues that are attributed to the breach. Consider forming a plan to quickly respond to those affected by the breach. Notify appropriate authorities of the breach as required by law.

1.3.11. Members should consider applicable privacy laws. For example, the Financial Services Modernization Act of 1999 (also referred to as the Gramm-Leach-Bliley Act (GLBA)), requires professional tax return preparers to ensure the security and confidentiality of customer (i.e., taxpayer) financial information. As part of the implementation of the GLBA, the FTC issued the Safeguards Rule, requiring the development of a written information security plan that describes the program put in place to protect taxpayer information commensurate with relative firm size of the member and complexity of services provided. Additionally, under these rules, return preparers are responsible for taking steps to ensure that their affiliates and service providers safeguard taxpayer information in their care. As with many privacy laws, the FTC has subsequently updated the rule to keep pace with technology and members should periodically review applicable privacy laws to keep abreast of applicable rules.

1.3.12. A member should have general knowledge of the current security expectations of taxing authorities and taxpayers. Data security is a topic addressed in the tax press and by taxing authorities. For example, at the time of this writing, the IRS has a webpage with links to various publications and other information related to data protection. Members are not expected to become experts in this area, but it is reasonable that a member avail himself or herself of the information made generally available to tax professionals on the subject, including those referenced in section 1.3.7.1.

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1.3.13. Training is a vital component of any data protection plan. A member should make reasonable efforts to ensure all non-member personnel who the member supervises should be trained and informed about data protection. For example, staff should be informed how to recognize phishing emails and the dangers of opening or downloading attachments from unknown senders.

1.4. Reliance on tools

Introduction 1.4.1. This statement sets forth the applicable

standards for members when relying on tools in the provision of tax services including, but not limited to, the preparation of a tax return, tax consulting services and tax representation.

1.4.2. For purposes of this section, a tool is a resource used in the provision of tax services. Tools include, but are not limited to, tax preparation software, tax research publications (paper or electronic), tax-related calculation aides, tax planning software, state and local tax aids, online data search engines, data analytics, statistical models, artificial intelligence and relevant professional publications and resources.

Statement 1.4.3. A member should exercise appropriate

professional judgement and professional care when relying on a tool.

1.4.4. A member may reasonably rely on tools used in providing tax services to a taxpayer. Use of the tool does not absolve the member of his or her professional obligations under AICPA or other applicable ethical standards.

Explanations 1.4.5. Tools developed for use in the provision of

tax services provide significant benefits to members. It is generally a best practice of a member to rely on such tools to a certain extent to improve efficiency and client service.

1.4.6. The source of the tools must be considered when determining the appropriate level of reliance on that tool. For example, subscription- based tax research tools and resources may have more weight than opinion articles from independent internet sources.

1.4.7. A member who employs tools in providing tax services remains responsible for the completed work product in accordance with the various other standards contained in the statements. Accordingly, members should take reasonable steps to satisfy themselves that the results presented by the use of various tools are reliable. For example, a member should confirm that the calculation of taxable income and tax liability for an income tax return that is completed using professional tax return preparation software is accurate and meets the standards for tax return positions established in 2.1, Tax Return Positions.

1.4.8. Tools should be used to enhance or improve the member’s understanding of a tax issue, not to supplant the member’s professional judgement. For example, when preparing a Federal Form 1040, U.S. Individual Income Tax Return, a member must still attest under penalties of perjury that, to the best of the preparer’s knowledge and belief, the return and accompanying schedules are true, correct and complete. That responsibility cannot be transferred entirely to reliance on a tool.

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Statement on Standards for Tax Services No. 2, Standards for Members Providing Tax Compliance Services, Including Tax Return Positions

2.1. Tax return positions

Introduction 2.1.1. This statement sets forth the applicable

standards for members preparing or signing tax returns (including amended returns, claims for refund and information returns) filed with any taxing authority.

2.1.2. Additional standards apply to tax positions which a member advises on. Refer to 1.1, Advising on Tax Positions. When signing or preparing a tax return that includes a tax position which a third party advised on, also refer to 2.3, Reliance on Information from Others.

2.1.3. For purposes of this statement, preparation of a tax return includes giving advice on events that have occurred at the time the advice is given if the advice is directly relevant to determining the existence, character or amount of a schedule, entry or other portion of a tax return.

2.1.4. This statement also addresses a member’s obligation to advise a taxpayer of relevant tax return disclosure responsibilities and potential penalties.

Statement 2.1.5. A tax return position is a tax position (as defined

in section 1.1.4) that is reflected on a tax return prepared by a member or for which a member signs as preparer.

2.1.6. A member should determine and comply with the standards, if any, that are imposed by the applicable taxing authority with respect to preparing or signing a tax return.

a. If the applicable taxing authority has no written standards with respect to preparing or signing a tax return, a member should not prepare or sign the tax return unless

the member has a good-faith belief that the tax return position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.

b. If the applicable taxing authority has written standards that exceed the realistic possibility standard described in section 2.1.6.a. above, the member should comply with those taxing authority standards.

c. Notwithstanding section 2.1.6.a. and b., a member may, as permitted by a taxing authority, prepare or sign a tax return which includes a tax return position where (i) the member concludes there is a reasonable basis for the tax return position and (ii) the position is appropriately disclosed.

2.1.7. When preparing or signing a tax return on which a tax return position is taken, a member should, when relevant, advise the taxpayer regarding potential penalty consequences of such tax return position and the opportunity, if any, to avoid such penalties through disclosure.

2.1.8. A member should not advise a taxpayer to take a tax return position or prepare or sign a tax return reflecting a tax return position that the member knows:

a. exploits the audit selection process of a taxing authority, or

b. serves as a mere arguing position advanced solely to obtain leverage in a negotiation with a taxing authority.

2.1.9. A member may rely, in good faith, on the tax positions proposed by others regarding the issues being considered, provided the member is satisfied that the standards in 2.3, Reliance on Information from Others, are satisfied.

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Explanation 2.1.10. The AICPA and various taxing authorities

impose specific reporting and disclosure standards with respect to tax return positions and preparing or signing tax returns. In a given situation, the standards, if any, imposed by the applicable taxing authority may be higher or lower than the standards set forth in section 2.1.6. A member is to comply with the standards, if any, of the applicable taxing authority. If the applicable taxing authority has no standards or if its standards are lower than the standards set forth in section 2.1.6, the standards set forth in section 2.1.6. will apply.

2.1.11. Our self-assessment tax system can function effectively only if taxpayers file tax returns that are true, correct and complete. A tax return is prepared based on a taxpayer’s representation of facts, and the taxpayer has the final responsibility for positions taken on the return.

2.1.12. In reaching a conclusion concerning whether a given standard in 2.1.6. has been satisfied, a member may consider a well-reasoned construction of the applicable statute and related regulations, if any, well-reasoned articles or treatises or pronouncements issued by the applicable taxing authority, regardless of whether such sources would be treated as authority under Internal Revenue Code Section 6662, Imposition of accuracy-related penalty on underpayments, and the regulations thereunder. A position would not fail to meet these standards merely because it is later abandoned for practical or procedural considerations during an administrative hearing or in the litigation process.

2.1.13. If a member has a good-faith belief that more than one tax return position meets the standards set forth in section 2.1.6., a member’s advice concerning alternative acceptable positions may include a discussion of the likelihood that each such position might or might not cause the taxpayer’s tax return to be examined and whether the position would be challenged in an examination. In such

circumstances, such advice is not a violation of section 2.1.6.

2.1.14. A member’s advising on whether information is appropriately disclosed by the taxpayer should be based on the facts and circumstances of the particular case and the disclosure requirements of the applicable taxing authority. If a member advising on a tax position, but not engaged to prepare or sign the related tax return, advises the taxpayer concerning appropriate disclosure of the position, then the member shall be deemed to meet the disclosure requirements of these standards.

2.1.15. If particular facts and circumstances lead a member to believe that a taxpayer penalty might be asserted, the member should so advise the taxpayer and should discuss with the taxpayer the opportunity, if any, to avoid such penalty by disclosing the position on the tax return. A member should also advise the taxpayer it is their responsibility to decide whether and how to disclose.

2.2. Tax return questions

Introduction 2.2.1. This statement sets forth the applicable

standards for members when signing the preparer’s declaration on a tax return if one or more questions on the return have not been answered. The term questions include requests for information on the return, in the instructions or in the regulations, whether or not stated in the form of a question.

Statement 2.2.2. Before signing as preparer, a member should

take reasonable steps to obtain from the taxpayer the information necessary to provide appropriate answers to all required questions on a tax return.

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Explanation 2.2.3. It is recognized that the questions on tax

returns are not of uniform importance, and often they are not applicable to the particular taxpayer. Nevertheless, there are at least three reasons why a member should be satisfied that a reasonable effort has been made to obtain information to provide appropriate answers to the questions on the return that are applicable to a taxpayer:

a. A question or other information may be of importance in determining taxable income or loss, or the tax liability shown on the return, in which circumstance an omission may detract from the completeness of the return.

b. A request for information may require a disclosure necessary for a complete return or to avoid penalties.

c. A member often must sign a preparer’s declaration stating that the return is true, correct and complete. Additionally, this may be stipulated as being signed under penalties of perjury.

2.2.4. Reasonable grounds may exist for omitting an answer to a question applicable to a taxpayer. For example, reasonable grounds may include the following:

a. The information is not readily available and the answer is not significant in terms of its impact on taxable income or loss, or the tax liability shown on the return.

b. Genuine uncertainty exists regarding the meaning of a question in relation to the particular return.

c. The information requested is voluminous; in such cases, a statement should be made on the return that the information will be supplied upon request.

2.2.5. A member should not omit an answer merely because it might prove disadvantageous to a taxpayer.

2.2.6. A member should consider whether the omission of an answer to a question may cause the return to be deemed incomplete or result in penalties, and advise the taxpayer accordingly.

2.2.7. If reasonable grounds exist for omission of an answer to an applicable question, a taxpayer is not required to provide on the return an explanation of the reason for the omission.

2.3. Reliance on information from others

Introduction 2.3.1. This statement sets forth the applicable

standards for members concerning the obligation to examine or verify certain supporting data or to consider information related to another taxpayer when preparing a taxpayer’s tax return.

Statement 2.3.2. In preparing or signing a return, or a portion of a

return, a member may in good faith rely, without verification, on information furnished by the taxpayer or by third parties. However, a member should not ignore the implications of information furnished and should make reasonable inquiries if the information furnished appears to be incorrect, incomplete or inconsistent either on its face or on the basis of other facts known to the member. A member should consider one or more of the taxpayer’s prior year tax returns, or a portion of a return, whenever feasible.

2.3.3. If the tax law or regulations impose a condition with respect to deductibility or other tax treatment of an item, a member should make reasonable inquiries to determine to the member’s satisfaction whether such condition has been met.

2.3.4. When preparing a tax return, a member should consider relevant information actually known by that member from other sources, including the tax return of another taxpayer. In using such information, a member should consider any limitations imposed by any law or rule relating to confidentiality.

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Explanation 2.3.5. The preparer’s declaration on a tax return often

states that the information contained therein is true, correct and complete to the best of the preparer’s knowledge and belief based on all information known by the preparer. This type of reference should be understood to include information furnished by the taxpayer or by third parties to a member in connection with the preparation of the return.

2.3.6. The preparer’s declaration does not require a member to examine or verify supporting data; a member may rely on information furnished by the taxpayer unless it appears to be incorrect, incomplete or inconsistent. However, there is a need to determine by inquiry that a specifically required condition, such as maintaining books and records or substantiating documentation, has been satisfied and to obtain information when the material furnished appears to be incorrect, incomplete or inconsistent. Although a member has certain responsibilities in exercising due diligence in preparing a return, the taxpayer has the ultimate responsibility for the contents of the return. Thus, if the taxpayer presents unsupported data in the form of lists of tax information, such as dividends and interest received, charitable contributions and medical expenses, such information may be used in the preparation of a tax return without verification unless it appears to be incorrect, incomplete or inconsistent either on its face or on the basis of other facts known to a member.

2.3.7. Even though there is no requirement to examine underlying documentation, a member should encourage the taxpayer to provide supporting data where appropriate. For example, a member should encourage the taxpayer to submit underlying documents for use in tax return preparation to permit full consideration of income and deductions arising from security transactions and from pass-through entities, such as estates, trusts, partnerships and S corporations.

2.3.8. The source of information provided to a member by a taxpayer for use in preparing the return is often a pass-through entity, such as a limited partnership, in which the taxpayer has an interest but is not involved in management. A member may accept the information provided by the pass-through entity without further inquiry, unless there is reason to believe it is incorrect, incomplete or inconsistent, either on its face or on the basis of other facts known to the member. In some instances, it may be appropriate for a member to advise the taxpayer to ascertain the nature and amount of possible exposure to tax deficiencies, interest and penalties by taxpayer contact with management of the pass-through entity.

2.3.9. A member should make use of a taxpayer’s returns for one or more prior years in preparing the current return whenever feasible. Reference to prior returns and discussion of prior-year tax determinations with the taxpayer often provides information to determine the taxpayer’s general tax status, avoid the omission or duplication of items and afford a basis for the treatment of similar or related transactions. As with the examination of information supplied for the current year’s return, the extent of comparison of the details of income and deduction between years depends on the particular circumstances.

2.4. Use of estimates

Introduction 2.4.1. This statement sets forth the applicable

standards for members when using the taxpayer’s estimates in the preparation of a tax return. Appraisals or valuations are not considered estimates for purposes of this statement. The accuracy of the estimate is the responsibility of the taxpayer.

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Statement 2.4.2. Unless prohibited by statute, administrative

rule or judicial holdings, a member may use estimates, whether from the taxpayer or other sources authorized by the taxpayer as permitted in 2.3, Reliance on Information from Others, in the preparation of a tax return if it is not practical to obtain exact data and if the member determines that the estimates are reasonable based on the facts and circumstances known to the member. Estimates should be presented in a manner that does not imply greater accuracy than exists.

Explanation 2.4.3. Accounting requires the exercise of professional

judgment and, in many instances, the use of approximations based on judgment. The application of such accounting judgments, as long as not in conflict with rules set forth by a taxing authority, is acceptable. These judgments are not estimates within the purview of this statement. For example, a federal income tax regulation provides that if all other conditions for accrual are met, the exact amount of income or expense need not be known or ascertained at year end if the amount can be determined with reasonable accuracy.

2.4.4. When the taxpayer’s records do not accurately reflect information related to small expenditures, accuracy in recording some data may be difficult to achieve. Therefore, the use of estimates by a taxpayer in determining the amount to be deducted for such items may be appropriate.

2.4.5. When records are missing or precise information about a transaction is not available at the time the return must be filed, a member may prepare a tax return using a taxpayer’s estimates of the missing data. The member should inform the taxpayer of the taxpayer duty to maintain records that support the return.

2.4.6. Estimated amounts should not be presented in a manner that provides a misleading impression about the degree of factual accuracy.

2.4.7. Specific disclosure that an estimate is used for an item in the return is not generally required; however, such disclosure should be made in unusual circumstances where nondisclosure might mislead the taxing authority regarding the degree of accuracy of the return as a whole. Some examples of unusual circumstances include the following:

a. A taxpayer has died or is ill at the time the return must be filed.

b. A taxpayer has not received a Schedule K-1 for a pass-through entity at the time the tax return is to be filed.

c. There is litigation pending (for example, a bankruptcy proceeding) that bears on the return.

d. Fire, technology issues or natural disaster has destroyed the relevant records.

2.5. Departure from previous positions

Introduction 2.5.1. This statement sets forth the applicable

standards for members in advising on a tax return position that departs from the position determined in an administrative proceeding or in a court decision with respect to the taxpayer’s prior return.

2.5.2. For purposes of this statement, administrative proceeding includes an examination by a taxing authority or an appeals conference relating to a return or a claim for refund.

2.5.3. For purposes of this statement, court decision means a decision by any court having jurisdiction over tax matters.

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Statement 2.5.4. Unless the taxpayer is bound to a specified

treatment of a tax return position in a later tax year, the member may advise on a tax return position or prepare or sign a tax return that departs from the treatment of an item as concluded in an administrative proceeding or court decision with respect to a prior return of the taxpayer, provided the requirements of 2.1, Tax Return Positions, are satisfied.

Explanation 2.5.5. If an administrative proceeding or court decision

has resulted in a determination concerning a specific tax treatment of an item in a prior year’s return, a member will usually advise this same tax treatment in subsequent years. However, unless the taxpayer is contractually bound to a particular tax treatment, departures from consistent treatment may be justified under such circumstances as the following:

a. Taxing authorities tend to act consistently in the disposition of an item that was the subject of a prior administrative proceeding but generally are not bound to do so. Similarly, a taxpayer is not bound to follow the tax treatment of an item as consented to in an earlier administrative proceeding.

b. The determination in the administrative proceeding or the court’s decision may have been caused by a lack of documentation. Supporting data for the later year may be appropriate.

c. A taxpayer may have yielded in the administrative proceeding for settlement purposes or not appealed the court decision, even though the position met the standards in 2.1, Tax Return Positions.

d. Court decisions, rulings or other authorities that are more favorable to a taxpayer’s current position may have developed since the prior administrative proceeding was concluded or the prior court decision was rendered.

2.5.6. The consent in an earlier administrative proceeding and the existence of an unfavorable court decision are factors that the member should consider in evaluating whether the standards in 2.1, Tax Return Positions, are met.

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Statement on Standards for Tax Services No. 3, Standards for Members Providing Tax Consulting Services

Introduction 3.1.1. This statement sets forth the applicable

standards for members concerning certain aspects of providing tax advice to a taxpayer and considers the circumstances in which a member has a responsibility to communicate with a taxpayer when subsequent developments affect advice previously provided.

Statement 3.1.2. A member should use professional judgment

to ensure that tax advice provided in a tax consulting engagement reflects competence and is based on applicable standards. For this purpose, competence follows the definition established in Section 10.35 of Circular 230. A member may communicate tax advice in writing or orally. When communicating tax advice in writing, a member should comply with relevant taxing authorities’ standards, if any, applicable to written tax advice. A member should use professional judgment about any need to document oral advice. A member is not required to follow a standard format when communicating or documenting oral and written advice.

3.1.3. A member should assume that tax advice provided to a taxpayer will affect the manner in which the matters or transactions considered would be reported or disclosed on the taxpayer’s tax returns. Therefore, for tax advice given to a taxpayer, a member should consider, when relevant (a) return reporting and disclosure standards applicable to the related tax position and (b) the potential penalty consequences of the return position. In ascertaining applicable return reporting and disclosure standards, a member should follow the standards in 2.1, Tax Return Positions.

3.1.4. A member has no professional obligation to communicate the impact of subsequent developments that affect advice previously provided to taxpayers, whether current clients or not. Members should communicate the impact of subsequent developments when they are assisting in implementing procedures or plans associated with the tax advice previously provided, or are specifically engaged to report on such developments by specific agreement.

Explanation 3.1.5. Tax advice is recognized as a valuable service

provided by members. The form of advice may be oral or written and the subject matter may range from routine to complex. Because the range of advice is so extensive and because advice should meet the specific needs of a taxpayer, neither a standard format nor guidelines for communicating or documenting advice to the taxpayer can be established to cover all situations.

3.1.6. Although oral advice may serve a taxpayer’s needs appropriately in routine matters or in well-defined areas, written communications are recommended in important, unusual, substantial dollar value or complicated transactions. The member may use professional judgment about whether, subsequently, to document oral advice.

3.1.7. In deciding on the form of advice provided to a taxpayer, a member should exercise professional judgment and consider such factors as the following:

a. The importance of the transaction and amounts involved

b. The specific or general nature of the taxpayer’s inquiry

c. The time available for development and submission of the advice

d. The technical complexity involved

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e. The existence of authorities and precedents

f. The tax sophistication of the taxpayer

g. The need to seek other professional advice

h. The type of transaction and whether it is subject to heightened reporting or disclosure requirements

i. The potential penalty consequences of the tax position for which the advice is rendered

j. Whether any potential applicable penalties can be avoided through disclosure

k. Whether the member intends for the taxpayer to rely upon the advice to avoid potential penalties

3.1.8. A member may assist a taxpayer in implementing procedures or plans associated with the advice offered. When providing such assistance, the member should review and revise such advice as warranted by new developments and factors affecting the transaction.

3.1.9. Sometimes a member is requested to provide tax advice but does not assist in implementing the plans adopted. Although such developments as legislative or administrative changes or future judicial interpretations may affect the advice previously provided, a member cannot be expected to communicate subsequent developments that affect such advice unless the member undertakes this obligation by specific agreement with the taxpayer.

3.1.10. Taxpayers should be informed that (a) the advice reflects professional judgment based upon the member’s understanding of the facts, and the law existing as of the date the advice is rendered and (b) subsequent developments could affect previously rendered professional advice. Members may use precautionary language to the effect that their advice is based on facts as stated and authorities that are subject to change.

3.1.11. If a member advising on a position, but not engaged to prepare or sign the related tax return, advises the taxpayer concerning appropriate disclosure of the position, then the member shall be deemed to meet the disclosure requirements of these standards.

3.1.12. If particular facts and circumstances lead a member to believe that a taxpayer penalty might be asserted, the member should so advise the taxpayer and should discuss with the taxpayer the opportunity, if any, to avoid such penalty by disclosing the position on the tax return. Although a member should advise the taxpayer with respect to disclosure, it is the taxpayer’s responsibility to decide whether and how to disclose.

3.1.13. This standard does not address situations in which consulting services may be relied on by parties other than the taxpayer.

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Statement on Standards for Tax Services No. 4, Standards for Members Providing Tax Representation Services

Introduction 4.1.1. This statement sets forth the applicable

standards for a member representing a taxpayer with a power of attorney before an applicable taxing authority. Representing a taxpayer in various tax matters could involve application of other standards. The focus of this statement is on the representation relationship itself.

4.1.2. In addition to the AICPA, applicable taxing authorities may impose specific guidance related to the representation of taxpayers, such as Circular 230. These standards can vary between taxing authorities and by type of tax.

Statement 4.1.3. The member, and any individuals working with

or for the member, should have or take steps to obtain technical competence in the subject matter involved. This includes competence in the technical tax area involved as well as the tax practice and procedures of the taxing authority. For this purpose, competence follows the definition established in Section 10.35 of Circular 230.

4.1.4. The member should take appropriate steps to ensure compliance with all relevant professional and regulatory obligations when representing a taxpayer.

4.1.5. The member should act with integrity and professionalism in all dealings with the taxing authority. This includes not unduly delaying or impeding the taxing authority.

4.1.6. Information requested by the taxing authority should, with taxpayer approval, be provided by the member on a timely basis unless there is a good-faith belief that the information is privileged.

4.1.7. The member should consider if the taxpayer’s conduct may be fraudulent or criminal in nature. If so, the member should advise the taxpayer to retain legal counsel and refrain from further representation.

4.1.8. Upon completion of the examination by the taxing authority, the member should review any documents or computations detailing the results of the examination for correctness and discuss with the taxpayer the consequences of agreeing to these conclusions.

Explanation 4.1.9. Competency is an important issue for

professionals who provide tax representation services. While continuing professional education tends to focus on tax law updates or more complex technical tax issues, members often overlook the complicated rules of tax practice and procedure that go hand in hand with representation of taxpayers. Members dealing with tax agencies should be knowledgeable about the procedural issues they may encounter while representing taxpayers.

4.1.10. Members should consider multiple areas which could impact a taxpayer representation engagement. Among other items, this may include:

a. Consulting with a local law firm to determine whether the representation would constitute the unauthorized practice of law;

b. Determining whether CPA licensure in another jurisdiction may be required;

c. Executing any taxpayer authorizations required by the taxing authority such as powers of attorney;

d. Determining whether the member may be facing a conflict of interest such as representing other taxpayers who are taking a contrary position;

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e. Establishing and documenting in writing an understanding with the taxpayer regarding objectives of the engagement, services to be performed, taxpayer’s acceptance of its responsibilities, member’s responsibilities and any limitations of the engagement.

4.1.11. When representing taxpayers, members are required to comply with all conflict-of-interest standards, such as Section 1.000.020, Ethical Conflicts of the Code of Professional Conduct.

Questions for respondents The goal of the revisions of the SSTSs is to ensure that the standards are still relevant in today's tax environment, address the current and emerging needs of today's members and to serve the public. In addition, the standards were reorganized to enhance their understanding and use.

The AICPA values the views of all stakeholders and is seeking comments. We encourage you to provide us your thoughts on any or all of the revisions and have provided specific questions to help you provide us feedback.

Please advise if your response is on behalf of a firm, business or other stakeholder or whether it represents your individual views. Additionally, please include what your role and title is and details of your firm or organization size.

Please submit comments via our online form. Alternatively, you may email your submission to: [email protected].

ED1. Do you agree with the reorganization of the current SSTSs, and will it enhance their use and understanding? Please explain the rationale behind your response.

ED2. Based on review of the proposed changes to the SSTSs, is there any other subject matter which you believe should be revised or deleted from the SSTSs? If so, please provide the rationale.

ED3. Are the proposed new standards (data protection, reliance on tools and tax representation services) clear and understandable? If you believe more specificity would be helpful, what recommendations would you suggest?

ED4. What other subjects impact your tax practice or the tax function you perform and should be considered in future revisions to the SSTSs? Please provide details of the recommended additions, together with your reasoning for the proposed changes.

ED5. What additional guidance is needed to help you understand, effectively implement and apply the proposed standards to your working environment?

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Part 2: Invitation to Comment

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This ITC is separate and independent from the preceding ED and presents items for consideration that require additional research and investigation and thus will require additional time to define and potentially implement. Depending on the nature of the comments received in response to this ITC, the AICPA will pursue additional research to determine the appropriateness of future modifications to the SSTSs or other guidance. At this time, it is not known if or when any changes resulting from the ITC will be implemented.

Introduction As part of the process to update the SSTSs, the SSTS Revision Task Force held extensive discussions around the importance of additional concepts with the potential to significantly impact the tax practice of the future. A resonating theme emerged in many discussions related to quality management in tax, defined as a proactive, risk-based, scalable approach to ensure that an individual or firm possesses the necessary competence to practice. Based on the discussions, members agreed that quality is a key market differentiator in their practices; however, its implementation is inconsistent and the environment in which members operate is dynamic.

Given the importance of this topic, the AICPA is inviting members and stakeholders to comment on the questions raised in this ITC. The task force and the TEC will consider all comments in determining the best approach to address quality within the tax function.

Issue description One of the aims of the AICPA’s Code of Professional Conduct is to protect the public interest. The public interest principle states that "... members should accept the obligation to act in a way that will serve the public interest, honor the public trust and demonstrate a commitment to professionalism.” Members are expected to provide quality services in a manner that demonstrates a level of professionalism consistent with these goals. These are the expectations that members are held to and, when asked, it is recognized that high quality work products are a defining feature of CPAs.

The CPA brand is consistently associated with numerous characteristics including trust, integrity, honesty and quality. Many professions aspire to be associated with these traits, yet few achieve the reputation CPAs have maintained for over 125 years. Thus, members have an opportunity to continue to be perceived as the premier providers of tax services by demonstrating adherence to quality principles in the delivery of their services. By investing in systems that will help them develop a strong approach to quality management and making sure that such concepts are embraced by all individuals who are part of the firm or department, members can enhance the services they provide and can better position themselves in the event of an investigation by the IRS Office of Professional Responsibility or other government agency.

State of quality management in tax CPAs have benefited from practicing in a self-regulated profession due to the strong reputation of the AICPA’s professional standards. However, in December of 2009, the IRS released a 57-page document outlining a plan to regulate all tax return preparers. Although CPAs, attorneys and enrolled agents were exempted from most of the requirements imposed on “unenrolled” tax return preparers, the IRS indicated a plan to assess the quality of tax return preparation by exempted tax professionals. Despite the judicial determination in Loving v. Commissioner that the IRS did not have the authority to regulate tax return preparers, discussions regarding both the regulation of tax return preparers and the quality of professionally prepared tax returns have continued. For example, the IRS requires individuals

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representing taxpayers before the IRS to have adequate procedures in place to comply with ethical and quality guidelines established in Circular 230 (refer to Section 10.36).

The IRS has since publicly announced that it is reviewing the provisions of Circular 230 with the intent of updating them. Although unknown if such revisions will encompass mandatory enhancements to quality, it is widely believed that greater scrutiny, by both the taxing authorities and the public at large, will be placed on members.

Some members have expressed that initiating an approach to quality management in tax may be perceived as a step towards peer review. The TEC and the AICPA consider the concept of quality management and peer review to be independent and distinct from one another.

Implementation With more focus on quality management in tax comes the perception that implementing such procedures could present a burden or put members at a competitive disadvantage against other tax practitioners. In reality, most members already have quality management procedures in place. While some may believe that such an approach could mandate the use of checklists or other such documents to prove procedures are being adhered to in the performance of tax services, alternative simpler approaches could be used. For example, a member could periodically discuss how they adhere to the six elements of a tax practice quality control system identified in the Tax Practice Quality Control Guide and Template. This resource is offered by the AICPA Tax Section to members who are looking to develop a more robust system in areas such as:

• Leadership responsibilities for quality within a firm,

• Relevant ethical requirements,

• Acceptance and continuance of client relationships and specific engagements,

• Human resources,

• Engagement performance, and

• Monitoring.

In general, members have expressed support for initiatives to improve the quality of tax services. Though the implications related to the cost and effort necessary to implement such initiatives may be deemed too burdensome by some members, many recognize the benefits. The process of implementing a system that encompasses the firm’s organizational structure, along with the policies and procedures established to provide a level of confidence that the tax practice complies with applicable professional, statutory and regulatory requirements (e.g., SSTSs and Circular 230), demonstrates good business practice.

Embracing quality principles will demonstrate to regulators, clients, organizations and the public that members are the premier providers of tax services. There is not a “one-size-fits-all” solution, simply the desire to consistently produce a quality product in a manner that works best for a member’s particular circumstances. With this in mind, the TEC and the task force seek the input of members and stakeholders on the optimal approach to improve quality management in tax.

We appreciate your responses to the questions below, along with any other thoughts you have around the concept of quality management and how it can best be implemented by all members, irrespective of the tax services they provide or the type of client or organization they serve.

Please submit comments via our online form. Alternatively, you may email your submission to: [email protected].

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Questions for respondents Please advise if your response is on behalf of a firm, business or other stakeholder or whether it represents your individual views. Additionally, include what your role and title is, details of your firm or organization size and details about your processes and procedures.

ITC1. How do you define quality management in tax? Please be as specific as possible.

ITC2. What role do you think the AICPA should undertake regarding quality management in tax? Please explain your rationale.

ITC3. To preserve the ability to self-regulate, do you believe the AICPA should consider quality management in tax for potential inclusion in future SSTSs? If “no,” how should quality management in tax be addressed? Please provide your reasoning.

ITC4. How do you currently approach and ensure adherence to quality management within your tax function?

• What challenges do you experience?

• What type of application material would be helpful from the AICPA?

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Contributors The TEC promulgates the SSTSs and their interpretations. The Tax Practice Responsibilities Committee and SSTS Revision Task Force report to the TEC and were responsible for the overall project.

Below lists the members of the TEC, Tax Practice Responsibilities Committee and SSTS Revision Task Force at the time of this exposure.

Acknowledgment is also due to the many members who have devoted their time and efforts over the years to developing and revising the AICPA’s standards.

Tax Executive Committee (2022–23) Jan. F. Lewis (chair) Haddox Reid Eubank Betts PLLC

N. Blake Vickers (vice chair) Alamo Group Inc.

Kevin Anderson BDO USA LLP

David Baldwin Baldwin Moffitt Behm LLP

Cheri Freeh Hutchinson, Gillahan & Freeh, PC

Michael Greenwald Friedman LLP

Edward Jenkins Penn State University

Holly Love Deloitte Tax LLP

Jeffrey Martin Grant Thornton LLP

Mark Prater PricewaterhouseCoopers

Nicholas Preusch Yount, Hyde & Barbour, P.C.

Justin Ransome Ernst & Young LLP

Jessica Sawyer CitrinCooperman

Anna Seto KPMG LLP

Catherine Shaw Stanton Cherry Bekaert LLP

Sandi Thorman GreerWalker, LLP

Christopher Wittich Boyum & Barenscheer, PLLP

Donald Zidik Grassi

Tax Practice Responsibilities Committee (2022–23) David J. Holets (chair) Crowe LLP

Les Williford (immediate past chair) BDO USA, LLP

Kathryn Clymer-Knapp Ernst & Young, LLP

Carolyn Dawson Mamiye Brothers, Inc.

Karen L. Jones PricewaterhouseCoopers, LLP

Michael Katovitz KPMG LLP

Kathleen M. Klein Deloitte Tax LLP

Michelle W. Lemanski Batchelor Tillery & Roberts, LLP

Larry Marietta Marietta CPAs

Lisa M. Newland Rehmann

Cynthia M. Pedersen Cohen & Company, Ltd.

Luis Plascencia Luis V. Plascencia CPA, PC

Susan J. Rosenberg Saggar & Rosenberg, PC

Stephen P. Valenti Stephen P. Valenti CPA

Todd Simmens (observer) BDO USA, LLP

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SSTS Revision Task Force David J. Holets (chair) Crowe LLP

Lea Fletcher KPMG LLP

Nicholas M. Preusch YHB CPAs & Consultants

Thomas J. Purcell, III Creighton University

Heidi A. Ridgeway Grant Thornton LLP

Stephanie S. Saunders Saunders & Saunders PC

Gerard H. Schreiber, Jr. Schreiber & Schreiber CPAs

Norma J. Schrock Ernst & Young LLP

Joseph J. Tapajna University of Notre Dame

Christopher Wittich Boyum & Barenscheer, PLLP

AICPA staff Edward Karl, Vice President Tax Policy & Advocacy [email protected]

Eva Simpson, Vice President Tax Practice & Financial Planning [email protected]

Melanie Lauridsen, Director – Tax Practice & Ethics [email protected]

Susan C. Allen, Senior Manager – Tax Practice & Ethics [email protected]

Henry J. Grzes, Lead Manager – Tax Practice & Ethics [email protected]

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