If the member is requested to prepare the current year’s return, and the taxpayer has not taken action to correct an error in a prior year’s return, the member should consider whether to proceed with the preparation of the current year’s return. If the current year’s return is prepared, the member should take reasonable steps to ensure that the error is not repeated. A member should advise a taxpayer, either orally or in writing, as to the correction of errors in the prior year’s return. In a case where there is a possibility that the taxpayer may be charged with fraud, the taxpayer should be referred to an attorney.
52. Explain which types of services a CPA can and cannot provide to avoid engaging in the unauthorized practice of law.
ANSWER: Frequently, legal and accounting questions are so intertwined in tax practice that they are difficult to distinguish. Over the years, a number of court cases have addressed the issue of unauthorized practice of law by accountants and other tax preparers. Though state and federal court cases have some inconsistent results, the current belief is that CPAs and other nonattorneys who practice law before the IRS do not engage in the unauthorized practice of law if they are careful not to provide any general legal services. Thus, the following types of general law activities should be avoided by nonattorneys:
• Expressing a legal opinion on any non-tax matter.
• Drafting wills or trust instruments.
• Drafting contracts.
• Drafting incorporation papers.
• Drafting partnership agreements.
As long as CPAs and other nonattorneys stay within the practice of tax and do not cross over into the practice of general law, they can avoid the problem of unauthorized practice of law.
53. Explain the concept of “limited practice without enrollment” under Circular 230 and list several of the special situations in which the IRS allows this type of representation.
ANSWER: Under Section 10.7 of Circular 230, certain individuals are authorized to represent a taxpayer before the IRS without being an attorney, CPA, or enrolled agent. These special situations include the following types of representation:
• An individual may represent a member of his or her immediate family.
• A regular, full-time employee of an individual employer may represent the employer.
• A general partner or a regular, full-time employee of a partnership may represent the partnership.
• A bona fide officer or a regular, full-time employee of a corporation (including a parent, subsidiary, or other affiliated corporation), association, or organized group may represent the corporation, association, or organized group.
• A regular, full-time employee of a trust, receivership, guardianship, or estate may represent the trust, receivership, guardianship, or estate.
• An officer or a regular employee of a governmental unit, agency, or authority may represent the governmental unit, agency, or authority in the course of his or her official duties.
• An individual may represent any individual or entity who is outside the United States before personnel of the Internal Revenue Service when such representation takes place outside the United States.
• An individual who prepares and signs a taxpayer's tax return as the preparer, or who prepares a tax return but is not required (by the instructions to the tax return or regulations) to sign the tax return, may represent the taxpayer during an examination of the taxable year or period covered by that tax return, but this right does not permit such individual to represent the taxpayer before Appeals Officers, Revenue Officers, Counsel, or similar officers or employees of the Internal Revenue Service or the Department of Treasury.
54. Explain the standards for professional services that involve tax return positions under SSTS No.1. What is the level of authority for disclosed or undisclosed positions and what types of authority can be relied upon?
ANSWER: Under SSTS No. 1, a member should determine and comply with the standards, if any, that are imposed by the applicable taxing authority with respect to recommending a tax return position, or preparing or signing a tax return. If the applicable taxing authority has no written standards with respect to recommending a tax return position or preparing or signing a tax return, or if its standards are lower than the standards set forth in the SSTSs, then the standard in SSTS No. 1 applies. This standard provides that, in providing professional services that involve tax return positions, a member should have a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged. In addition, a member may recommend a tax return position if the member concludes that there is a reasonable basis for the position and advises the taxpayer to appropriately disclose that position. Thus, a member may prepare or sign a tax return that reflects a position if a member has a reasonable basis for the position and that position is appropriately disclosed.