Tax responsibilities: an overview of AICPA and IRS rules of practice.

• Author: Purcell, Thomas J., III

THE ET1IICAL STANDARDS TO BE FOLLOWED by CPAs in tax practice require them to know about applicable rules of the AICPA and the IRS and other statutory and regulatory rules of tax practice. This column refreshes practitioners on the AICPA and IRS rules of practice, provides a list of resources for questions and answers, and details the relationship and similarities between the AICPA and IRS ethics standards related to tax practice.

Comparisons are made among the AICPA Code of Professional Conduct (the AICPA Code), AICPA Statements on Standards for Tax Services (the Standards), Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), and the Internal Revenue Code (IRC) and other Treasury regulations. In addition to these, tax practitioners should be aware of state board rules and state statutes governing practice in the practitioner's jurisdiction and any tax compliance filings in the jurisdiction where the client's tax return is filed.

The AICPA Code and the Standards are enforceable rules for all AICPA members in public practice and industry. Circular 230 applies to all CPAs in federal tax practice, and the IRC and Treasury regulations are enforceable on both practitioners and the public. Many of these rules are available on the AICPA Tax Section's Standards and Ethics webpage at tinyurl.com/2dwaw69.

The number and increases in the amount of penalties in the IRC in recent years make following the tax practice standards all the more important.

Integrity and Objectivity

AICPA Code Rule 102, Integrity and Objectivity, states, "In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others."

Included under this section is Interpretation 102-2, "Conflicts of Interest," which states:

A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity, product, or service that could, in the member's professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member's objectivity. If the member believes that the professional service can be performed with objectivity, and the relationship is disclosed to and consent is obtained from such client, employer, or other appropriate parties, the rule shall not operate to prohibit the performance of the professional service. When making the disclosure, the member should consider Rule 301, Confidential Client Information [ET Section 301.01]. Circular 230, Section 10.29, Conflicting Interests, is a more rigid rule than the one in the A1CPA Code. It defines a conflict as

1. The representation of one client will be directly adverse to another client; or

2. There is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client or a third person, or by a personal interest of the practitioner.

   Circular 230 also indicates the practitioner may represent the client if

1. The practitioner reasonably believes that the practitioner will be able to provide competent and diligent representation to each affected client;

2. The representation is not prohibited by law; and

3. Each affected client waives the conflict of interest and gives informed consent, confirmed in writing by each affected client, at the time the existence of the conflict of interest is known by the practitioner. The confirmation may be made within a reasonable period of time after the informed consent, but in no event later than 30 days. {Circular 230, [section]10.29(b)]

   Circular 230 also requires that the written waiver obtained from the client be retained by the practitioner for 36 months and that it be made available to the IRS upon request.

   The many entity choices available to taxpayers create situations that necessitate vigilance over possible conflicts. Practitioners commonly perform tax services for different generations and members of families; partnerships and their individual partners; corporations and their individual shareholders; and fiduciaries and their beneficiaries. These situations increase the need to evaluate whether...