Aggressive Tax Strategies: Managing Client Expectations
by Arthur V. Pearson e have all had them in our careers as return preparers and tax advisors: those clients who are always looking for a way to save income taxes aggressively, so aggressively, that sometimes they cause you concern. Many clients, at all levels of sophistication, believe that if a CPA is willing to take a deduction or exclude income from a return, that the position must be in conformance with the tax laws. They perceive you as the taxation gatekeeper. How do we manage those expectations and these situations? Know the Law Knowledge is power. A return preparer must be thoroughly familiar with the AICPA's Statements on Standards in Tax Services (SSTS), which define a return preparer's duties insofar as dealing with tax positions requested by clients.1 In addition, the return preparer should be familiar with Treasury Circular 230, which is a U.S. Treasury publication derived from its regulations,2 defining tax practice before the Internal Revenue Service, including return preparation. Statement on Standards for Tax Services No. 1 provides:
2. The following standards apply to a member when providing professional services that involve tax return positions:
a. A member should not recommend that a tax return position be taken with respect to any item unless the member has a good-faith belief that the position has a realistic possibility of being sustained administratively or judicially on its merits if challenged.
b. A member should not prepare or sign a return that the member is aware takes a position that the member may not recommend under the standard expressed in paragraph 2a.
c.Notwithstanding paragraph 2a, a member may recommend a tax return position that the member concludes is not frivolous as long as the member advises the taxpayer to appropriately disclose. Notwithstanding paragraph 2b, the member may prepare or sign a return that reflects a position that the member concludes is not frivolous as long as the position is appropriately disclosed.
d.When recommending tax return positions and when preparing or signing a return on which a tax return position is taken, a member should, when relevant, advise the taxpayer regarding potential penalty consequences of such tax return position and the opportunity, if any, to avoid such penalties through disclosure.
3. A member should not recommend a tax return position or prepare or sign a return reflecting a position that the member knows—
a.Exploits the audit selection process of a taxing authority.
b.Serves as a mere arguing position advanced solely to obtain lever-age in the bargaining process of settlement negotiation with a taxing authority.
4.When recommending a tax return position, a member has both the right and responsibility to be an advocate for the taxpayer with respect to any position satisfying the aforementioned standards.
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1.The SSTS (Statements on Standards in Tax Services) were formerly known as the Statements on Responsibility in Tax Practice (SRTP), but were upgraded in 2000 from guidelines to standards - which means that they have been upgraded to a standard of care. 2.31 Code of Federal Regulations, Subtitle A, part 10.
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