Tax practitioners face heightened litigation and traps for the unwary.

• Author: Ferguson, Carol B.

Editor's note: This department is written by the AICPA Tax Division's professional staff. It is designed to heighten awareness of the Division's work and keep readers apprised of Tax Division activities involving tax policy, technical issues and other practice support matters.

The environment within which AICPA members practice today is characterized by heightened litigation against CPAs. According to AICPA professional liability statistics, approximately half of all claims filed against CPAs during the past six years involve tax matters. As CPAs in tax practice face growing risks and uncertainty, they must constantly watch for traps for the unwary. One place where CPAs need to play closer attention is in the area of professional standards of conduct. Currently, there are no separate enforceable standards for AICPA members relating to tax services. The Statements on Responsibilities in Tax Practice (SRTPs), which were developed by the AICPA Tax Division Responsibilities in Tax Practice Committee and issued by the Tax Executive Committee, provide a body of advisory and educational opinions on appropriate standards of tax practice. These statements delineate members' responsibilities to their clients, the public, the government and the profession, and are advisory in nature.

While the SRTPs are not enforceable standards of the AICPA, increasingly, courts of law, state accountancy boards and other bodies are effectively treating them as enforceable and holding CPAs to them. These bodies consider the SRTPs to be proper and well-reasoned standards of conduct to which CPAs should be held accountable. As this trend continues (and in all probability accelerates), members may increasingly find themselves in very undesirable and unexpected legal positions, with the SRTPs being cited as authority by opposing counsel or expert witnesses in court proceedings.

There is considerable support for these statements being treated as enforceable:

In all tax engagements, and especially in situations that challenge the accountant's judgment and integrity, the accounting firm should look to the AICPA's Statements of [sic] Responsibilities in Tax Practice (SRTPs) for guidance. SRTPs, which have been issued periodically since 1964, are intended to establish standards for tax practice and to define the CPA's responsibility to the client, the public, the government, and the accounting profession in this area. Since these Statements are often referred to by plaintiffs'...