TAX PRACTICE REVIEW AND SSTSs.

• Author: Holub, Steven F

Editor's note: Messrs. Holub, Scutellaro and Muirhead are members of the AICPA Tax Division's Member Tax Practice Improvement Committee.

If you would like additional information about this article, contact Mr. Holub at (813) 222-8555 or stevenh@apcpa.com or Mr. Scutellaro at (732) 240-7377 or joe.scutellaro@jumpcpa.com.

The adoption of the initial eight enforceable Statements on Standards for Tax Services (SSTSs) (see the October 2000 issue of Journal of Accountancy) makes it important for CPAs to examine their tax practices' quality control procedures and tax practice review (TPR) process. The standards now make it necessary for firms to document "best practices." Once they establish best practices, firms can enhance and monitor tax practice quality control, using the AICPA's Guidelines for Tax Practice Review (Guidelines).

Guidelines is a road map for monitoring a firm's tax practice, either through a self-assessment or on a firm-on-firm basis. If a firm does not have a tax practice quality control document (TPQCD) in place, Guidelines has tools that make it easy to establish one.

Benefits of TPR

Beyond the fact that enforceable standards now exist, firms can receive many additional benefits from a TPR.

Increased quality. A TPR is not a direct review of profitability items. However, it indirectly improves profitability through a focus on quality. While CPA tax practices vary in style, they all seek high-quality performance. Quality is the common thread found in all tax practices and is multi-dimensional. It means one thing to clients; it means something different to fellow professionals. The TPR program attempts to focus on quality on both these levels. A TPR introduces a systematic approach to quality control in tax practice. Improved quality of work increases efficiency in delivering services. A good system of quality control helps to maintain and improve quality and thereby improve profitability.

Increased quality in tax practice means adopting as normal operating procedure (when feasible) what the industry considers best practices.

Malpractice avoidance. For several years, tax malpractice claims have out-numbered accounting and auditing claims. In fact, tax claims have represented approximately 60% of all claims against CPAs. Guidelines emphasizes quality and quality control and should have a direct impact on malpractice exposure, to the extent the program is used. The quality of a firm's work reduces the risk of error and, thus, exposure to legal action.

Most malpractice insurance carriers, including the AICPA Professional Liability Plan, inquire about TPRs. Often, a firm that undergoes a TPR can qualify for a peer-review credit or other additional discounts.

However, more importantly, if a firm has a tax malpractice claim, participation in a TPR program (including the establishment of a TPQCD) is useful as a possible defense in certain legal actions.

Preparer penalties and sanctions.

The IRS first added return preparer penalties to the Code in 1976 and amended them in 1989. The return preparer penalties fall into the following groups:

1. Sec. 6694--Negligent or Fraudulent Return Preparation;

2. Sec. 6695--Standards of Return Preparation;

3. ...