The AICPA Statements on Standards for Tax Services are enforceable ethical standards for AICPA members who perform tax services. The revised set took effect January 1, 2024, and is organized by the type of work performed: general standards (No. 1), tax compliance (No. 2), tax consulting (No. 3) and tax representation (No. 4). This article maps the structure, the rules that drive daily return decisions, and what a firm should document.
What is the history of the SSTS?
The SSTS were first issued in 2000, updated in 2009 and revised through a project that began in 2018, according to The Tax Adviser. The AICPA released proposed revisions for comment in August 2022. The Tax Executive Committee adopted the updates on May 18, 2023, and the AICPA announced them on November 13, 2023. Existing interpretations and FAQs were updated with new citations to match the new numbering, and the prior SSTS are archived.
The revision did two things: it reorganized the standards by type of work, and it added three new standards. Those three are data protection, reliance on tools, and representation before taxing authorities.
How are the four standards organized?
| Standard | Scope | Sections |
|---|---|---|
| SSTS No. 1 | General standards for all tax services | 1.1 Advising on Tax Positions; 1.2 Knowledge of Errors; 1.3 Data Protection; 1.4 Reliance on Tools |
| SSTS No. 2 | Tax compliance: original and amended returns, refund claims, information returns | 2.1 Tax Return Positions; 2.2 Tax Return Questions; 2.3 Reliance on Information From Others; 2.4 Use of Estimates; 2.5 Departure From Previous Positions |
| SSTS No. 3 | Tax consulting engagements to advise on a specific tax issue | Single standard |
| SSTS No. 4 | Tax representation before a tax authority in an examination or appeals process | Single standard |
The data protection and reliance on tools standards sit in No. 1 because they apply across every type of tax service.
What does SSTS No. 2 require for a return position?
Paragraph 2.1.6 is the rule most preparers apply daily. A member should not prepare or sign a return unless the member has a good-faith belief that the position has a realistic possibility of being sustained administratively or judicially if challenged. The alternative is a position with a reasonable basis that is appropriately disclosed to the taxing authorities.
Support should come from primary sources: statutory, administrative and judicial authority. More supporting sources strengthen the position.
The SSTS standard is a floor, not the only test. Statutory preparer penalties and Circular 230 apply separately, and a higher standard set by the taxing authority controls. See section 6694 preparer penalties and Circular 230 section 10.34 for the substantial authority and reasonable basis tests that apply to the same positions.
Other SSTS No. 2 rules
- Tax return questions (2.2): take reasonable steps to ensure the client responds to requests for information needed for a complete and accurate return.
- Reliance on information from others (2.3): a member may rely on client information without verification but should make reasonable inquiries.
- Use of estimates (2.4): estimates are generally acceptable when the member exercises professional judgment.
What must a member do about an error?
Section 1.2 covers knowledge of errors. The member must promptly inform the client of the error and recommend corrective action (1.2.6). If a client refuses to file missing returns, the member should consider withdrawing (1.2.7). The member cannot inform the taxing authority of the error without the client's consent (1.2.8).
The last point is the one engagement letters should address in advance. A member who finds an error after delivery has a client communication duty but no unilateral disclosure right. Build the notice into the file: date of discovery, date and form of client notification, recommended action, and the client's response.
What do the new data protection and tools standards add?
Data protection (1.3). Members should make reasonable efforts to safeguard taxpayer data, including electronic data (1.3.4). Encrypting files with strong passwords is described as an effective safeguard (1.3.7). A member may use electronic tools or outsource tasks if reasonable efforts are made to protect client data (1.3.8), and must consider privacy laws and industry standards (1.3.5, 1.3.7). Firm-level programs that meet this are covered in IRS Publication 4557 safeguarding checklist.
Reliance on tools (1.4). A member may rely on tools such as tax software and online research libraries (1.4.2). The member must still exercise due professional care, and using a tool does not relieve the member of responsibilities under the AICPA Code (1.4.3 to 1.4.4). The documentation point follows directly: a return that flows from software defaults without a reviewer's judgment on the positions has no evidence of due care. See the AICPA Code of Professional Conduct.
How do SSTS No. 3 and No. 4 apply?
Consulting (No. 3). Members use professional judgment so that advice is competent (3.1.2) and apply the SSTS No. 2 tax position guidance (3.1.4). Advice may be oral or written, and written is the best practice (3.1.3). Advice rests on the facts and law as of its date, with no obligation to update it for later changes (3.1.5, 3.1.11). That last point is worth stating in the advice letter itself.
Representation (No. 4). Members maintain technical competence (4.1.3) and act with integrity and professionalism with the IRS (4.1.5). They may consider withdrawing if the client's conduct appears fraudulent or criminal (4.1.7). At the conclusion of an audit, they review the findings and consequences with the client (4.1.8). They also consider engagement terms, power of attorney, unauthorized practice of law, multijurisdictional licensing and conflicts of interest (4.1.9). For the power of attorney piece, see Form 2848 vs Form 8821.
What should the firm file for each tax engagement?
- Engagement letter naming the service type (compliance, consulting or representation), so the right SSTS applies.
- Position memo for each return position below clear authority, stating the authority relied on and whether disclosure was made.
- Client questions record, showing the inquiries made on incomplete or inconsistent information.
- Tool reliance note, identifying which software outputs were reviewed and by whom.
- Error log with discovery date, client notice and the corrective action recommended.
- Data handling record for any outsourced step, linking to the firm's safeguards program.
Where do the SSTS fit with other rules?
A CPA who is also a practitioner before the IRS is bound by the SSTS, the AICPA Code and Circular 230 at once. Where they overlap, follow the strictest. For competence and delegation under Circular 230, see Circular 230 section 10.35.
CORAA prepares ready-to-review audit files for US CPA firms; see /us.
Sources
- The Tax Adviser (AICPA & CIMA), Understanding the updated tax ethical standards: https://www.thetaxadviser.com/issues/2023/nov/understanding-the-updated-tax-ethical-standards/
- AICPA & CIMA, AICPA Tax Executive Committee approves revised tax standards following comment period: https://www.aicpa-cima.com/news/article/aicpa-tax-executive-committee-approves-revised-tax-standards-following
- Journal of Accountancy, AICPA adopts revised tax standards: https://www.journalofaccountancy.com/news/2023/nov/aicpa-adopts-revised-tax-standards
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AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error