Components of the AICPA’s Statements on Standards for Tax Services

By Scott A. Yetmar and Jacques Rioux

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Approximately 55% of all federal income tax returns and an even greater proportion of complex returns are prepared by tax professionals at a total cost that exceeds $11 billion annually. The role of a tax professional lies somewhere along a continuum, with government agent at one end and taxpayer advocate at the other. The IRS first added return-preparer penalties to the IRC in 1976, and amended them in 1989. Estimates indicate that nearly a quarter of all tax preparers will be assessed for some type of preparer penalty during the course of their careers.

With the creation and substantial increase in tax preparer penalties, the IRS is moving preparers toward the agent end of the spectrum. This may lead to more dilemmas in ambiguous situations. When asked to describe the job situation that posed the most difficult ethical or moral problem, AICPA members pointed to tax issues. In “Ethical Problems in Public Accounting: The View From The Top” (Journal of Business Ethics, Vol. 7, August 1988), David W. Finn, Larry B. Chonko, and Shelby D. Hunt wrote that the most frequently cited ethical dilemma concerned clients proposing unwarranted tax return changes or attempting to commit tax fraud. For several years, tax malpractice claims against CPAs have outnumbered accounting and audit claims, with tax claims representing approximately 60%, according to S.F. Holub, in “Tax Practice Review and SSTS” (The Tax Adviser, December 2000).

The Statements on Standards for Tax Services (SSTS) have their origin in the Statements on Responsibilities in Tax Practice (SRTP), which the AICPA issued between 1964 and 1991. The SRTPs were advisory rather than enforceable. The SSTS and Interpretation 1-1 superseded and replaced the SRTPs and their Interpretation 1-1 effective October 31, 2000. In addition, the SSTSs are enforceable by the AICPA. The SSTSs now apply to all tax engagements, not just federal. A number of state boards of accountancy have adopted the SSTS as enforceable standards. Jurisdictions that have not explicitly adopted the SSTSs nonetheless often expect CPAs to conform to them.


Focus groups were held in Des Moines, Iowa, and Kansas City, Missouri, to gather insights into the most contentious passages in the SSTSs. Tax professionals from the major national firms, regional firms, and local firms studied the SSTSs and emphasized passages that evinced their ethical concerns. Participants were not biased toward any passages by the focus group facilitator. Six passages were the topics of most of the discussion (Exhibit 1). Their ethical concerns were very similar to those reported in two previous studies. (See “On Compliance with Ethical Standards in Tax Return Preparation,” Evelyn C. Hume, Ernest R. Larkins, and Govind S. Iyer, Journal of Business Ethics, January 1999; and “Ethical Issues in Tax Practice: Recent Changes in IRS Enforcement Activity,” Lawrence C. Phillips and Kay W. Tatum, The CPA Journal, January 2001.)

The authors constructed a survey instrument using the six substantial ethical concerns identified by the focus group. The intent of the survey was to determine the rank order of these six passages from the SSTSs and their relative magnitude of importance in the daily tax practice using the Analytic Hierarchy Process (AHP). The survey was sent to 2,000 members of the AICPA’s Tax Division during February 2002; 842 usable responses were received.

Analytic Hierarchy Process (AHP)

The respondents first chose which of two attributes was more important. Second, pair-wise comparisons were made for all 15 possible pairs, using a nine-point intensity-of-importance scale. A value of 1 implies that the two alternatives are of equal importance (therefore, both items would be chosen in step one), and a value of 9 implies absolute importance. Statistical techniques determined the rank order and relative importance of the six passages (attributes).

The rank order of the importance of various passages of the SSTSs is a standard statistic. The unique information provided by AHP is the various passages’ magnitude of importance. For example, while the standard statistical results indicate that passage #6 is the most important and passage #2 is the least important responsibility, AHP indicates that passage #6 is 4.67 times more important (28/6) than passage #2.


The results by position (Exhibit 2) show a striking difference between partners/owners and managers/senior managers. Managers ranked SSTS passage #2 (duty to the taxpayer and to the tax system) much higher. This is also shown by looking at the results by age grouping (Exhibit 5). Younger respondents placed more importance on passage #2, which may be due to their being more sensitive to tax preparer penalties because the IRS’ emphasis on these penalties has substantially increased in the last 15 years.

The results by firm type (Exhibit 3) indicate that large firms place more importance on passage #3 (advise the taxpayer regarding potential penalty consequences) than smaller firms, which may be due to large firms dealing with more complex issues with more “gray area” tax situations.

The results by risk level (Exhibit 4) show that, no matter the risk level, passages #2, #4 (exploit the audit lottery), and #5 (bargaining chips in a settlement negotiation) have relatively low importance as compared with the other three passages. The respondents were asked to indicate on a 10-point scale their professional risk level when preparing a tax return (1 = very risk-averse and 10 = very risk-seeking). A slight majority of respondents were risk-averse.

When the results are broken down by gender, males and females responded very similarly.


SSTS passage #2 (a CPA tax practitioner’s duty to both the taxpayer and the tax system) has a very low relative importance and rank order compared with the other five passages. This finding is not surprising, because the AICPA and its predecessor organizations have endorsed the approach that a CPA should function as an advocate for a tax client within the bounds of professional ethical codes of conduct since shortly after the enactment of the Sixteenth Amendment in 1913. Nontheless, those SSTS passages relatively important to CPAs promote less-aggressive actions when compared to client advocacy (e.g., make reasonable inquiries of information furnished, advise of penalties and disclosure, and the realistic possibility standard).

Scott A. Yetmar, PhD, CMA, CFM, FLMI, CPA, is an assistant professor of accounting at the James J. Nance College of Business, Cleveland State University, Cleveland, Ohio.
Jacques Rioux, ASA, PhD
, is a senior actuarial science at the SAS Institute, Cary, N.C. He is presently working on software to satisfy the Basel II Operational Risk reporting requirements for the banking industry.




















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