Question

[6] When a member of the AICPA prepares a taxpayer’s federal income tax return, the member has the responsibility to A. Be an advocate for the entity’s position. B. Verify the data to be used in preparing the return. C. Take a position of independent neutrality. D. Argue the position of the Internal Revenue Service. The correct answer is A. A. A member of the AICPA engaged in tax practice has the right and responsibility to be an advocate for the client with regard to any tax return position that meets legal and professional standards. A taxpayer has no obligation to pay more taxes than legally owed (TS 100). B. The data need not be verified unless the information seems incomplete, inconsistent, or incorrect. C. A member must be independent when performing attestation services, not for tax return preparation services. D. A member has the right and the responsibility to be an advocate of the client, not the IRS.

1-Explain what an advocate means in the context of tax preparation, and how it relates to Judge Learned Hand.

2- What are the limits of advocacy for the tax preparer

3- Is an external auditor also an advocate?  Why or why not?  Discuss the differences in this respect between a tax preparer and the external auditor of financial statements

Answer 1

1-Explain what an advocate means in the context of tax preparation, and how it relates to Judge Learned Hand.

Advocate in the context of tax preparation is a person who has primary loyalty towards the tax payer and he works zealously within the bounds of the tax laws to represent the tax payer in such matters, only when he is eligible for representation. Judge learned hand was very instrumental in shaping up the income tax laws of America. His quotes and decisions are looked upon when it comes to tax avoidance cases. A procedural loop hole cannot be blamed upon the taxpayer as a criminal activity or non patriotism. An individual or any person has the right to plan his income and do tax planning.

2. Limites of Advocacy for the tax payer-

Tax payer is only eligible for advocacy under certain specific cases;

1. If the tax payer is facing some issues and financial difficulties and the IRS is moving too fast or too slow.

2. Where different IRS units or steps are involved and there is a need for a coordinator

3.. Tax payer tried to resolve the problem through normal channels but were broken

4. IRS adopts one fit for all but tax payer is trying to present all facts and issues differently.

There is a limit to advocacy for situtations other than this.

3.External Auditor is only responsible for giving a view on the financial statements as to whether they give a true and fair view. He is not representing the client in any case. In fact he is working for the shareholders who are appointing him. He doesn't prepare any financial statements, he is only responsible to verify or audit them. He has a duty towards the shareholders and hence, he is only responsible to give his views and opinion based on the auditing that the financials statements are free from material misstatements and present a true and fair view.

A tax preparer is a person who works for the tax payer and has a fiduciary duty to represent him in his tax issues. He is not an investogator or auditor. He is responsible to understand the tax laws and implement them in the returns that he is filing. He doesn't share merely an opinion but prepares the tax returns and hence has a responsibility as ab advocate.