AICPA should revise SRTP No. 6 to reflect authority on amended returns.

• Author: Josephs, Stuart R.
• Position: American Institute of CPAs, Statement on Responsibilities in Tax Practice

The AICPA's Statement on Responsibilities in Tax Practice (SRTP) No. 6 pertinently reads as follows:

Statement

.03 The CPA should inform the client promptly upon becoming aware of an error in a previously filed return or upon becoming aware of a client's failure to file a required return. The CPA should recommend the measures to be taken. Such recommendation may be given orally. The CPA is not obligated to inform the Internal Revenue Service, and the CPA may not do so without the client's permission, except where required by law.

.04 If the CPA is requested to prepare the current year's return and the client has not taken appropriate action to correct an error in a prior year's return, the CPA should consider whether to withdraw from preparing the return and whether to continue a professional relationship with the client. If the CPA does not prepare such current year's return, the CPA should take reasonable steps to ensure that the error is not repeated.

Explanation

.05 While performing services for a client, a CPA may become aware of an error in a previously filed return or may become aware that the client failed to file a required return. The CPA should advise the client of the error (as required by Treasury Department Circular 230) and the measures to be taken. It is the client's responsibility to decide whether to correct the error. In appropriate cases, particularly where it appears that the Internal Revenue Service might assert the charge of fraud or other criminal misconduct, the client should be advised to consult legal counsel before taking any action. In the event that the client does not correct an error, or agree to take the necessary steps to change from an erroneous method of accounting, the CPA should consider whether to continue a professional relationship with the client.(1)

However, the Supreme Court, in Badaracco, 464 US 386 (1984), decided that an amended return does not start the three-year statute of limitations if the original return was fraudulent. In its analysis, the Court stated in part:

To be sure, current Regulations, in several places, e.g., Treas. Reg. [sections][sections] 301.6211-1 (a), 301.6402-3 (a), 1.451-1 (a), 1.461-1 (a) (3) (i) (1983), do refer to an amended return, as does [sections]6213 (g) (1) of the Code itself, 26 U.S.C. [sections]6213 (g) (1) (1976 ed. Supp. V). None of these provisions, however, requires the filing of such a return. It does not follow from all this that an amended...