Aggressive Tax Strategies: Managing Client Expectations (part 3)
by Arthur V. Pearson

<<Previous page

With the decision-making process guided by the SSTS and Circular 230, the return preparer should grow a decision tree:

It should be noted that no matter which of these two standards is applicable, the determination of a tax position must be based on a good faith belief that the position is warranted in existing law or an extension of same.

Interpretation No. 1-1, of SSTS No. 1, Tax Return Positions, provides explicit guidance in determining what a frivolous position is, how one arrives at a "good faith belief" that the return position has "realistic possibility of being sustained administratively or judicially on its merits" and provides many illustrations of sample situations. Many questions can be answered by a thorough review of this Interpretation. At its heart the Interpretation requires adducing an accurate, factual background, the use of accepted tax research techniques, the use of professional judgment in weighing the authorities found, and the use of professional judgment in arriving at a conclusion.

Use of Engagement Agreements

Engagement agreements can be useful with clients like these in a number of ways:

1. Apprising client that you are relying on their tax information, without verification of its accuracy;
2. Put clients on notice that even though you may prepare and sign their return, it doesn't mean that the positions reflected in the return can't be successfully challenged by tax authorities;
3. Provides notice to the client that you may refuse to prepare or sign a return and may disengage in certain circumstances which may include disagreement over a tax position.
4.  Apprising the client that it is their responsibility to make sure the information appearing on the tax return is accurate.

Next page>>

Return to Top
Return to Publications

This material has been prepared by Murphy, Pearson, Bradley &amp; Feeney for information purposes only and is not legal advice. Receipt of the information is not intended to create, and receipt does not constitute an attorney-client relationship between the sender and the receiver. Readers should not act upon this information without seeking professional counsel.