Statement on Standards for Tax Services No. 3
Standards for Members Providing Tax Consulting Services
Introduction
3.1.1. This Statement on Standards for Tax Services (SSTS) sets forth the applicable standards for members regarding certain aspects of providing tax advice to a taxpayer and considers the circumstances in which a member is responsible for communicating with a taxpayer when subsequent developments affect advice previously provided.
Standard
3.1.2. A member should use professional judgment to ensure that tax advice provided in a tax consulting engagement is competent and based on applicable standards. For this purpose, competence follows the “Competence” interpretation (ET sec. 1.300.010) of the AICPA Code of Professional Conduct, as well as any other applicable standards.
3.1.3. A member may communicate tax advice orally or in writing. When communicating tax advice in writing, a member should comply with relevant taxing authorities’ standards, if any, applicable to written tax advice. A member should use professional judgment about any need to document oral advice. A member is not required to follow a standard format when communicating or documenting oral and written advice.
3.1.4. A member should assume that tax advice provided to a taxpayer will affect the manner in which the matters or transactions considered would be reported or disclosed on the taxpayer’s tax returns. Therefore, for tax advice given to a taxpayer, a member should consider, when relevant
a. return reporting and disclosure standards applicable to the related tax position and
b. the potential penalty consequences of the return position. In ascertaining applicable return reporting and disclosure standards, a member should follow the standards in section 2.1, “Tax Return Positions,” of SSTS No. 2, Standards for Members Providing Tax Compliance Services, Including Tax Return Positions.
3.1.5. A member has no professional obligation to communicate the impact of subsequent developments that affect advice previously provided to taxpayers, regardless of whether the taxpayers are current clients. Members should communicate the impact of subsequent developments when they are assisting in implementing procedures or plans associated with the tax advice previously provided or are specifically engaged to report on such developments by specific agreement.
Explanations
3.1.6. Tax advice is recognized as a valuable service provided by members. The form of advice may be oral or written and the subject matter may range from routine to complex. Because the range of advice is so extensive and because advice should meet the specific needs of a taxpayer, neither a standard format nor guidelines for communicating or documenting advice to the taxpayer can be established to cover all situations.
3.1.7. Although oral advice may serve a taxpayer’s needs appropriately in routine matters or in well-defined areas, written communications are recommended in important, unusual, substantial dollar value, or complicated transactions. The member may use professional judgment about whether, subsequently, to document oral advice.
3.1.8. In deciding on the form of advice provided to a taxpayer, a member should exercise professional judgment and consider such factors as the following:
a. The importance of the transaction and amounts involved
b. The specific or general nature of the taxpayer’s inquiry
c. The time available for development and submission of the advice
d. The technical complexity involved
e. The existence of authorities and precedents
f. The tax sophistication of the taxpayer
g. The need to seek other professional advice
h. The type of transaction and whether it is subject to heightened reporting or disclosure requirements
i. The potential penalty consequences of the tax position for which the advice is rendered
j. Whether any potential penalties can be avoided through disclosure
k. Whether the member intends for the taxpayer to rely on the advice to avoid potential penalties
3.1.9. A member may assist a taxpayer in implementing procedures or plans associated with the advice offered. When providing such assistance, the member should review and revise such advice as warranted by new developments and factors affecting the transaction.
3.1.10. Sometimes, a member is asked to provide tax advice but does not assist in implementing the plans adopted. Although such developments as legislative or administrative changes or future judicial interpretations may affect the advice previously provided, a member cannot be expected to communicate subsequent developments that affect such advice unless the member undertakes this obligation by specific agreement with the taxpayer.
3.1.11. Taxpayers should be informed that
a. the advice reflects professional judgment based on the member’s understanding of the facts, and the law existing as of the date the advice is rendered, and
b. subsequent developments could affect previously rendered professional advice. Members may use precautionary language to the effect that their advice is based on facts as stated and authorities that are subject to change.
3.1.12. If a member advising on a position, but not engaged to prepare or sign the related tax return, advises the taxpayer concerning appropriate disclosure of the position, then the member shall be deemed to meet the disclosure requirements of these standards.
3.1.13. If particular facts and circumstances lead a member to believe that a taxpayer penalty might be asserted, the member should advise the taxpayer and discuss with the taxpayer the opportunity, if any, to avoid such penalty by disclosing the position on the tax return. Although a member should advise the taxpayer with respect to disclosure, it is the taxpayer’s responsibility to decide whether and how to disclose.
3.1.14. This standard does not address situations in which consulting services may be relied on by parties other than the taxpayer.