Editor: John L. Miller, CPA
Circular 230, Section 10.33, on best practices deals with providing advice and preparing a submission to the IRS. This section affects several aspects of tax practice, including clear client communications, the importance of the conclusions reached, acting fairly and with integrity, and having procedures to ensure best practices. Section 10.33 says about best practices:
- Best practices. Tax advisors should provide clients with the highest quality representation concerning Federal tax issues by adhering to best practices in providing advice and in preparing or assisting in the preparation of a submission to the Internal Revenue Service. In addition to compliance with the standards of practice provided elsewhere in this part, best practices include the following:
- Communicating clearly with the client regarding the terms of the engagement. For example, the advisor should determine the client’s expected purpose for and use of the tax advice and should have a clear understanding with the client of the form and scope of the advice or assistance to be rendered.
- Establishing the facts, determining which facts are relevant, evaluating the reasonableness of any assumptions or representations, relating the applicable law (including potential applicable judicial doctrines) to the relevant facts, and arriving at a conclusion supported by the law and the facts.
- Advising the client regarding the import of the conclusions reached, including, for example, whether a taxpayer may avoid accuracy related penalties under the Internal Revenue Code if a taxpayer acts in reliance on the advice.
- Acting fairly and with integrity in practice before the Internal Revenue Service.
- Procedures to ensure best practices for tax advisors. Tax advisors with responsibility for overseeing a firm’s practice of providing advice concerning Federal tax issues or of preparing or assisting in the preparation of submissions to the Internal Revenue Service should take reasonable steps to ensure that the firm’s procedures for all members, associates, and employees are consistent with the best practices set forth in paragraph (a) of this section.
The steps practitioners should use in providing advice to clients include:
- Establishing the facts;
- Determining relevancy;
- Evaluating reasonableness of assumptions or representations;
- Relating applicable law to relevant facts; and
- Arriving at a conclusion supported by the law and the facts.
The IRS has indicated that best practices are “aspirational,” thereby giving CPAs latitude in their practices to implement the necessary procedures to conform with best practices. The comments in the Circular 230 revision state:
These best practices are aspirational. A practitioner who fails to comply with best practices will not be subject to discipline under these regulations. Similarly, the provision relating to steps to ensure that a firm’s procedures are consistent with best practices, now set forth in §10.33(b), is aspirational. Although best practices are solely aspirational, tax professionals are expected to observe these practices to preserve public confidence in the tax system. [T.D. 9165, “Explanation of Provisions.”]
While aspirational, best practices apply to both oral and written advice, and tax practitioners should embrace them as a tool to better operate their practices and assist their clients while still remaining an advocate for their clients. Reasonable steps to conform to this approach are expected and may be a factor if any legal problems arise with an engagement.
Implementation of best practices will require different procedures depending on the size of the firm and its area of expertise. Section 10.33(a) states that practitioners should use best practices in “providing advice and in preparing or assisting in the preparation of a submission to IRS.” This broad language would make this section applicable to all areas of tax practice, including both formal and informal advice, oral and written, given to clients. Section 10.33(a)(1) advocates communicating terms of engagement to clients, which would indicate that engagement letters in some form should be used.
This mandate is all inclusive and creates the responsibility for all CPAs to reevaluate their procedures for their tax practice. Small firms without established tax departments may have a significant burden in conforming with Section 10.33.
Likewise, time and fee burdens may make it difficult to implement certain provisions of this section.
Practice units will have to consider many matters, including the use of engagement letters, tax return checklists, adequate review of returns prepared, workflow, document retention, tax research materials, client acceptance and retention, and the use of a written memo whenever oral advice is given. CPAs will need to rely on external practice tools, printed material, continuing education, and possibly increases in staff to help them conform with Section 10.33. CPAs will be required to exercise professional judgment as to what is necessary to conform with this section.
Voluntary compliance with this section by CPAs who know the particular needs and technical areas of their practice will result in better “best practices” than a government mandate would. The AICPA’s Tax Division has devoted a significant amount of time and resources to helping members provide the highest quality tax services to the public. Tax advisers should consult the Tax Center website to review the available information and apply it to their practices. The Tax Center website includes:
- Practice guides and checklists;
- Resource pages;
- Sec. 7216 practice guide and information;
- AICPA Statements on Standards for Tax Services;
- Information on Report of Foreign Bank and Financial Accounts (FBAR); and
- Quality control recommendations. The IRS website also provides information for practitioners, and both the Journal of Accountancy and The Tax Adviser regularly cover practice topics.
The IRS language for best practices is aspirational. Tax practitioners should embrace this approach as a tool to better operate their practices and be advocates for their clients. The full text of Circular 230 is available at www.irs.gov/pub/irspdf/ pcir230.pdf.
John Miller is a faculty instructor at Metropolitan Community College in Omaha, NE. Gerard Schreiber Jr. is with Schreiber and Schreiber in Metairie, LA, and is a member of the AICPA Tax Division’s IRS Practice and Procedures Committee. For further information about this column, contact Mr. Miller at firstname.lastname@example.org.