One of the pillars of a member's responsibilities is to maintain objectivity. To do this, the member must avoid conflicts of interest. The term "conflict of interest" refers to a situation in which two or more parties have a competing interest that would make it difficult for the member to fulfill his or her duties fairly. In order to maintain the public trust and promote integrity and objectivity in the delivery of services, a member should be familiar with the conflict-of-interest standards governing the profession and understand how to address these situations when they arise.
The AICPA Tax Practice Responsibilities Committee has updated its Guidelines for Conflicts of Interest in the Performance of Tax Services (the Guidelines) to help members in this regard. The original Guidelines were published in May 2015 and were limited to conflicts of interest in the performance of federal tax services. The Guidelines were updated in March 2020 to expand the analysis to tax services in general.
Under the Guidelines, to determine whether an actual or potential conflict of interest exists, a member firm should adopt reasonable procedures, appropriate for the size and type of firm and its practice. Ignorance caused by a failure to institute such procedures may not excuse the member's violation of Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), Section 10.29, "Conflicts of Interest," which generally prohibits a tax practitioner from representing a client before the IRS if the representation involves a conflict of interest. Moreover, Sections 10.33(b) and 10.36 of Circular 230 make tax leaders within a firm responsible for establishing procedures that ensure firm members comply with rules.
It seems that, at a minimum, each firm should have in place a process by which a member can determine whether services sought by a potential or current client may be considered adverse to the interests of a current or former client or whether another professional within the member's firm has a personal conflict with the proposed client or service. Larger firms will likely require more robust and comprehensive systems to manage conflicts and independence checks. When determining whether a conflict may exist, members should be sensitive to the rules regarding the confidentiality of the taxpayer's information under Secs. 6713 and 7216 of the Internal Revenue Code and the AICPA Code of Professional Conduct's "Confidential Client Information Rule" (ET §1.700.001).
In some cases, an existing or potential conflict may be identified before the engagement is undertaken. In that case, the engagement should be declined unless the member believes the conflict can be properly managed and the member obtains the appropriate informed consent or waiver of each affected client.
In other cases, a conflict may arise during an engagement from unforeseeable developments, such as changes in the client's corporate or organization affiliations or a conflict between spouses for whom the practitioner has prepared a joint return. In those cases, the engagement can continue only after the member believes the conflict can be properly managed and has obtained the appropriate informed consent or waiver of all affected clients.
Most importantly, to resolve an actual or potential conflict of interest, the member must first decide whether he or she believes that he or she can perform the service competently and diligently. The member must also consider whether a reasonable and informed third party, knowing the threats and safeguards, would be expected to conclude that the member's integrity and objectivity are not compromised. If the member determines that these tests have been met, the affected clients still must be informed of the nature of the conflict and provide advance consent to having the services performed despite the actual or possible conflict of interest. Three samples of conflict waivers are included in the Guidelines.
For a detailed discussion of the issues in this area, see "Tax Practice Responsibilities: AICPA Committee Updates Its Conflict-of-Interest Advice," in the May 2020 issue of The Tax Adviser.
— Anna Seto, CPA, and Joseph Tapajna, CPA (members of the AICPA Tax Practice Responsibilities Committee)
The Tax Adviser is the AICPA's monthly journal of tax planning, trends, and techniques.
Also in the May issue:
- An update on developments affecting S corporations.
- A look at how to promote integrity in the classroom.
AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section membership includes a one-year subscription to The Tax Adviser.