Chapter 1
Introduction to Tax
Practice
William A. Raabe, Gerald E. Whittenburg, &
Debra L. Sanders
Copyright ©2006 Thomson South-Western, Mason, Ohio
Elements of Taxation
Elements of Tax Practice
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Tax Compliance
Tax Planning
Tax Litigation
Tax Research
Tax Compliance
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Gathering, evaluating, & classifying
information for
Filing tax returns
 Representing clients before the IRS during tax
return audits
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Tax Planning
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Arrange to minimize tax liability
Tax avoidance: legitimate
 Tax evasion: illegal
 Open transactions
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Plan for a pending (future) transactions
Closed transactions
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Minimize liability for past transactions
Tax Litigation
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Settling disputes with the IRS in courts
Attorneys usually handle litigation beyond
initial appeal of an IRS audit
Tax Research
Analyze and determine answers for tax situations:
Identify issues
 Determine proper authorities
 Evaluate appropriateness of authorities
 Apply authority to specific facts
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Rules & Ethics in Tax Practice
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Circular 230
AICPA Code of Professional Conduct
AICPA Statements on Standards for Tax
Services (SSTS)
Sarbanes-Oxley and Taxation
ABA Model Code of Professional
Responsibility
Circular 230
Governs all who practice before the IRS

Divided into these Subparts:
A: Rules Governing Authority to Practice
 B: Duties & Restrictions Relating to Practice before the
IRS
 C: Sanctions for Violation of the Regulations
 D: Rules Applicable to Disciplinary Proceedings
 E: General Provisions
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Circular 230 - Authority to Practice
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Practice before IRS
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Representing clients during audits
Who may practice
Attorneys
 CPAs
 Enrolled agents
 Enrolled actuaries
 Nonenrolled persons
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Circular 230 - Enrolled Agents
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Have either passed a special IRS exam or have
worked for the IRS for at least 5 years
Have the same rights as attorneys & CPAs in
representing clients before the IRS
May also be CPA or attorney
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Allows one to practice before IRS in any state
Must meet continuing education requirements
Circular 230 - Nonenrolled Persons
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Limited practice without enrollment
Represent oneself
 Represent immediate family
 Employee may represent employer
 General partner may represent partnership
 Trustee may represent trust
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Circular 230 - Nonenrolled Tax Return
Preparers
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May not
Represent taxpayer before appeals & collection
division
 Execute refund claims or receive refund checks for
clients
 Agree to suspend statute of limitations
 Execute closing agreements
 Waive restriction on assessment
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Circular 230 - Conduct Before the IRS
(1 of 2)
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Must furnish information to the IRS upon
request
If knows of client’s noncompliance, error, or
omission, must advise client of this
Must exercise due diligence
Must not unreasonably delay matters
Circular 230 - Conduct Before the IRS
(2 of 2)
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Cannot be a notary for clients
Fees must not be contingent or unconscionable
Limits on solicitation and advertising
Tax return positions must meet realistic possibility
standard
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At least a 1 in 3 likelihood of being sustained on its merits
Circular 230 - Exercise Due Diligence
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Must make a reasonable effort to comply with
tax laws
Failure to exercise due diligence is:
More than simple error
 But less than willful & reckless conduct
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Circular 230 - Contingent & Unconscionable
Fees
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Contingent fees
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Not on an original tax return
Acceptable on an amended return or refund claim (other
than a claim for refund made on an original return)
Unconscionable fees
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Fee is out of line with value of service provided to client
Circular 230 - Solicitation & Advertising
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Most media permissible
Cannot contain false, fraudulent, coercive, or
unfair statements
Must be tasteful
Must comply with other authorities
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ABA, AICPA, State CPA societies, state regulatory
agencies, National Association of Enrolled Agents,
etc.
Circular 230 - Tax Return Positions
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A position must have a realistic possibility of
being sustained on its merits:
It has at least a “one in three” chance of being
sustained on its merits
 May recommend position with less than “one in
three” chance if position is not frivolous & is
disclosed on the return
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Circular 230’s Best Practices
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Aspirational standards (not rules) that should help tax
advisors provide clients with the highest quality
representation concerning federal tax issues that cover:
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Communications with clients
Establishing relevant facts
Evaluating reasonableness of assumptions
Relating the law to the facts
Arriving at supported conclusions
Advising clients of the conclusions
Acting fairly and with integrity before the IRS
AICPA Code of Professional
Conduct
(1 of 2)
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Governs AICPA members
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All services provided by CPAs
Purpose is to provide:
Enforceable comprehensive code of ethical and
professional conduct
 Guide for members in answering complex
questions
 Assurance to the public
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AICPA Code of Professional
Conduct
(2 of 2)
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Rules apply to CPAs, their employees,
partners/shareholders, and others acting on behalf of
CPAs
Other guidance comes in the form of:
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Interpretation of the rules
Ethics rulings
Members must justify departure from Ethics Rulings
AICPA Code of Conduct Rules
(1 of 2)
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Independence (Rule 101)
Integrity & objectivity (Rule 102)
General standards (Rule 201)
Compliance with standards (Rule 202)
Accounting principles (Rule 203)
Confidential client information (Rule 301)
AICPA Code of Conduct Rules
(2 of 2)
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Contingent fees (Rule 302)
Acts discreditable (Rule 501)
Advertising & solicitation (Rule 502)
Commissions and referral fees (Rule 503)
Form of organization & name (Rule 505)
Statements on Standards for Tax
Services
(SSTS)
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Issued by AICPA
Enforceable standards
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Replaced Statements on Responsibilities in Tax
Practice (SRTPs) in August 2000
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SRTPs were advisory in nature
Intended to supplement AICPA Code of
Professional Conduct and Circular 230
SSTS
(1 of 2)
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Tax return positions (SSTS 1)
Answers to questions on returns (SSTS 2)
Certain procedural aspects of preparing returns (SSTS
3)
Use of estimates (SSTS 4)
SSTS
(2 of 2)
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Departure from a position previously concluded in an
administrative proceeding or court decision (SSTS 5)
Knowledge of error: Return preparation (SSTS 6)
Knowledge of error: Administrative proceedings (SSTS 7)
Form & content of advice to clients (SSTS 8)
Sarbanes-Oxley and Taxation
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Auditors may not provide certain services to
audit clients
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The Sarbanes-Oxley Act of 2002 listed nine such
prohibited services
Tax services may be provided if approved in
advance by the audit committee
ABA Code of Professional
Responsibility
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Canons: are statements of principles
Ethical considerations set objectives for each
canon
Disciplinary rules: minimum standards of
conduct
Tax Research by CPAs
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Tax problems are legal problems
This raises the question of whether CPAs are
violating the prohibition against the
unauthorized practice of law
Authorized Activities
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Prepare tax returns
Tax research
Provide tax advice
Practice before the IRS
Unauthorized Activities
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Express legal opinion on nontax matter
Draft wills or trusts
Draft contracts
Draft incorporation papers
Draft partnership agreements