Ethics and the tax preparer.

• Author: Sawyers, Roby B.
• Position: TAX PRACTICE RESPONSIBILITIES

Members of the AICPA Tax Section enjoy the benefit of a complimentary annual webcast on Tax Ethics, presented by volunteers of the AICPA Tax Practice Responsibilities Committee. Participants receive two hours of continuing education in the Ethics category and can download the PowerPoint presentation for future reference. Members who watch the webcast live are also able to submit questions for real-time response during the webcast. This column briefly summarizes some of the questions that arose during a recent webcast.

Conflicts of interest

Tax preparers have a duty to remain objective and, to a degree, independent from their clients. A situation in which clients have competing interests that could make it difficult for tax preparers to perform services fairly and objectively could be a conflict of interest. It is a best practice to avoid potential conflicts by having procedures in place before accepting new engagements or new clients to determine if the interests of the potential new client conflict with an existing client. Additionally, because there could be a conflict of interest with the tax preparation firm or member of the firm, potential new clients should be vetted with firm members.

Often, a conflict cannot be predicted or avoided--for instance, when individual tax clients file for divorce. A divorce does not require a tax preparer to drop one or both of the divorcing taxpayers; however, the new situation should cause the preparer to tread lightly, be extra vigilant, and make both parties aware of the intention of the preparer to continue to provide services to both parties.

Another common situation occurs when the tax professional provides services to a closely held business and the business owners. When a dispute arises and business partners desire to split up the business, it would be a challenge to fairly represent either owner regarding splitting up the business. The practitioner should consider the option of continued representation of the business only and recommend the individuals seek new and separate representation.

The AICPA Code of Professional Conduct and Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), both address conflicts of interest including the identification of potential conflicts, types of conflicts, and potential resolutions of conflicts. Both guidelines address obtaining a waiver of conflicts by affected parties, but only Circular 230 requires a waiver to be in writing. Section 10.29(b) of Circular 230 allows a practitioner to continue to represent a client with the existence of a conflict if the practitioner believes that he or she will be able to provide competent and diligent representation to each affected client. Therefore, if a tax preparer even remotely considers that a conflict may arise with an existing client, but the practitioner believes he or she can fairly represent all parties, a best practice would be to discuss the concerns and have all affected parties review and sign a conflict waiver document. This document must be kept in the client's permanent file for at least 36 months from the date representation of the client has concluded.

For members of the AICPA Tax Section, Guidelinesfor Conflicts of Interest in the Performance of Federal Tax Services is a helpful resource. It is a practice guide to educate members and to help members identify and address conflicts of interest. Sample conflict waiver documents are included in the appendix of this resource, available at tinyurl.com/sh37hy5 (AICPA member login required). This guideline has been updated as of March 2020 and is expected to be issued soon. For more information on conflicts of interest, see Seto and Tapajna, "Tax Practice Responsibilities: AICPA Committee Updates Its Conflict-of-interest Advice," 51 The Tax Adviser 338 (May 2020), available at...