The AICPA’s Statements on Standards for Tax Services (SSTSs) have been updated, clarified and streamlined in proposed revisions now available for study and comment by AICPA members.
They can be found on the Tax Division pages of the AICPA Web site at tinyurl.com/5be2rk. The SSTSs are enforceable rules of conduct for AICPA members, in conjunction with the AICPA’s Code of Professional Conduct Rule 201, General Standards, and Rule 202, Compliance With Standards.
WHY WERE THEY REVISED?
The current SSTSs, issued in 2000, closely mirror the earlier Statements on Responsibilities in Tax Practice (SRTPs), advisory opinions originally issued in the 1960s and 1970s. The SRTPs gradually became considered standards of professional practice, and in the late 1990s, the AICPA recognized a need to make them an official part of what were then known as the Professional Standards. At the time, the SSTSs introduced only minimal revisions to the SRTPs, because of the latter’s long use and, therefore, concerns over enforceability of new standards. Since then, however, further changes in federal and state tax laws and regulations and a need for clarification of a number of points prompted the Tax Executive Committee in 2004 to convene a task force that over the next four years produced the proposed revised SSTSs.
WHAT WAS CHANGED?
Some of the most notable revisions were to SSTS no. 1, Tax Return Positions, since it had been much affected by legal and regulatory amendments. Also, the proposed consolidation of SSTS no. 6 and SSTS no. 7 deserves careful review. A red-lined draft showing the current version with the proposed revisions is available on the Tax Division Web site. Here is a brief summary of new features:
SSTS no. 1, Tax Return Positions. statement provides the AICPA standards members must satisfy to recommend a tax return position and to sign a tax return. For nondisclosed positions recommended by a member, this statement has been revised to clarify that the tax return reporting standard of the applicable taxing authority must be satisfied; if the taxing authority has no written standard or its written standard is lower than the realistic-possibility-of-success standard for nondisclosed positions, the realistic-possibility-of-success standard will apply. The revisions also note that for federal returns, members should consult the tax return preparer standard in IRC § 6694 or its successor.
Generally, if a taxing authority has a standard for nondisclosed positions, it will also provide that if disclosure is made, the position may be recommended based on a lower standard. Current SSTS no. 1 provides that a member may recommend a disclosed position if the position is not frivolous. The revisions direct members to comply with the taxing authority’s standard for disclosed positions or, if there is no such standard or the standard is lower than a reasonable basis for recommending a position, the reasonable-basis standard will apply. The revisions also emphasize the requirement that members advise clients of the taxpayer return disclosure requirements and how taxpayers may avoid penalties through disclosure.
SSTS no. 2, Answers to Questions on Returns. The revisions give another reason why preparers signing a tax return should make a reasonable effort to obtain answers to all questions on a tax return: “A request for information may require a disclosure necessary for a complete return or to avoid penalties.”
SSTS no. 3, Certain Procedural Aspects of Preparing Returns. No substantive revisions, only language clarifications, are proposed for this statement.
SSTS no. 4, Use of Estimates. “Natural disaster” is added to fire and computer failure as examples of unusual circumstances in which a disclosure should be made that an estimate has been used in preparing a tax return.
SSTS no. 5, Departure From a Position Previously Concluded in an Administrative Proceeding or Court Decision. Language is clarified that whenever a member recommends a tax return position different from one determined with respect to a taxpayer’s previous return by an administrative proceeding or court decision, the member must do so within the strictures of SSTS no. 1, Tax Return Positions.
SSTS no. 6, Knowledge of Error: Return Preparation and Administrative Proceedings. Extensive revisions add “administrative proceedings” to the statement’s title and incorporate into this statement the current SSTS no. 7, Knowledge of Error: Administrative Proceedings, which is stricken entirely. In the current SSTSs, certain language is duplicated between the two statements, and other passages are similar but not identical. The consolidation is meant to clarify similarities and differences within the respective contexts of return preparation and administrative proceedings, where a member becomes aware of an error in a return or a taxpayer’s failure to file a required return. Under current SSTS no. 6 and SSTS no. 7, upon becoming aware of an error, the member is required to advise the taxpayer of the error and recommend that the error be corrected. Revised SSTS no. 6 requires the member to also explain to the taxpayer the potential consequences of the error.
SSTS no. 7, Form and Content of Advice to Taxpayers. The revised statement, renumbered from its current no. 8, clarifies that a member should comply with the relevant taxing authority’s requirements, if any, in giving advice and provides additional factors in determining the form of advice: the type of transaction and its reporting or disclosure requirements, the potential penalty consequences of the position that is the subject of the advice, whether any potential penalty can be avoided through disclosure, and whether the member intends for the taxpayer to rely upon the advice to avoid potential penalties. It also notes that written, as opposed to oral, advice may be more appropriate when advising on substantial dollar value transactions.
WHAT HAPPENS NEXT?
The Tax Executive Committee may adopt the revised SSTSs as proposed or may modify them based on the comments received. The Tax Division intends to update and revise accompanying interpretations after the revised SSTSs have been adopted.
Note: Comments on the proposed revised SSTSs are due by May 15. Please e-mail them to SSTScomments@aicpa.org or mail them to Edward S. Karl, Director, AICPA Tax Division, File: SSTS Comments, 1455 Pennsylvania Ave. NW, Washington DC 2004-1081.
By Gerard H. Schreiber Jr., CPA, a partner with Schreiber & Schreiber CPAs in Metairie, La. He is a member of the AICPA’s SSTS Revision Task Force and its IRS Practice & Procedures Committee. He has authored courses and articles on various tax subjects, including in the JofA (“Documenting a Casualty Loss,” Nov. 08, page 92). His e-mail address is email@example.com.