Thesis: Tax Service Profession Is Both Extremely Important

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Tax service profession is both extremely important and susceptible to violations by both service providers and clients. A number of codes, standards and circular documents are available to minimize the possibility of such violations.

Violations: Code Sections 6694 and 6695

Code sections 6694 and 6695 provide possible violations and concomitant fines for tax service officials. These codes impose penalties for knowingly unethical conduct. According to Code Section 6694, a tax return preparer may for example not understate a taxpayer's liability. The code does however provide for reasonableness - if the understatement has a reasonable cause, the preparer is not considered in violation of the code. On the other hand, if such understatement occurs as a result of wilful or reckless conduct, all penalties are upheld.

Wilful or reckless conduct is defined as the wilful understatement of liability, or the reckless or intentional disregard for regulations.

Code Section 6695 addresses more general transgressions by the tax preparer. A tax service provider for example could fail to provide the taxpayer with a copy of all relevant documents. If there is reasonable cause for such neglect, and the preparer can prove that there is no wilful neglect, he or she is not held liable. In many cases, the tax return preparer should sign the return, according to regulations. Failure to do so may cause the official to be regarded as violating such regulation. The preparer should provide an identifying number for any claim for refund. Other obligations include retaining a copy or list of returns or claims for refunds; filing correct information; negotiating checks for returns, and diligently determining eligibility for earned income credit.

Should the tax preparer fail in any of the above obligations, he or she is held liable, except in cases where reasonable cause and the absence of wilful neglect can be proven.

2) Circular 230

The Circular consists of five subparts under the designation Part 10.0. It addresses various aspects of practicing officials who are affiliated with the Internal Revenue Service, and who represent taxpayers in this regard. As such, the document concerns rules, terms and conditions under which an official might practice, as well as disciplinary and prohibitive conditions that might prevent a practitioner from acting on behalf of the IRS. As such, Subpart a addresses the rules under which a person may have or acquire the authority to practice before the IRS. Subpart B explicates the duties and restrictions connected to such practice. Subpart C concerns sanctions connected to violations of these duties, while Subpart D explicates the rules of disciplinary action for such violations. Finally, Subpart E highlights the general provisions of practice.

Specifically, IRS officials should ensure that they are not in violation of any rules and regulations in terms of tax laws in the United States. Basically, if there are no restrictions in terms of disbarment or disciplinary action against an official, the rules state that he or she may act before the IRS. This applies to relevant professions, such as attorneys, accountants, actuaries, or qualified government employees. If conflicts of interest arise between the IRS duties and the professional duties of the practitioner, the practitioner does not qualify to act on behalf of the IRS.

When acting on behalf of the IRS, the official is obliged to conduct his or her work in as accurate and honest a manner as possible. Concomitantly, the practitioner is also to maintain a sense of duty and honesty towards the client in terms of both service quality and fees. The client is not to be either misled in terms of tax return accuracy or billed excessively for the official's services.

2a) Practice before the IRS refers to all official actions related to and administered by the IRS. Such actions might include preparing documents, corresponding with the IRS, and representing a person at conferences, hearings and meetings.

There are several guidelines in terms of who may practice. Persons who may practice include attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plant agents, and others such as government officers and employees. Attorneys may practice only when they are not currently under some official form of discipline or suspension. Attorneys wishing to represent a person need to file a written declaration regarding their qualifications to do so. The same conditions are applicable to all other qualified individuals who wish to practice before the IRS. They must not be under any form of official discipline or disbarment, and must also file documents to this effect. State officers or employees may not practice if this discloses IRS information at the federal level.

A b) Rules regarding the return of clients' documents require that a practitioner must promptly return whatever documents the client may need to comply with his or her Federal tax obligations if the client requests this. Concomitantly, the practitioner is allowed to retain copies of the client's documents, should this be necessary. If the law allows the practitioner to retain the original documents, the client must be provided with reasonable access to such documents.

3) Statements on Standards for Tax Services

The Statements on Standards for Tax Services consists of eight statements that provide the tax service official with guidance regarding such service provision, as well as the ethics involved in providing these services. Each statement in turn has three sections: an introduction to the statement, the statement itself, and an explanation that makes the statement clearer. These explanations also remove any uncertainty that might relate to the guidelines in the statements themselves.

The purpose of the standards is to ensure that the profession maintains consistency throughout the country. The accounting profession in general, and tax services in particular, are particularly susceptible to fraudulent activities, by service providers and clients alike. If such activities become too prevalent, corruption prevails. It is the obligation of the official service provider to minimize the possibility of corruption.

Each standard therefore addresses a particular aspect of the tax service profession, and states a code of conduct for the professional to follow. These regulations then provides a standard for the profession as whole. In this way, clients are assured of high quality service with a high level of ethics.

Statement 3 addresses procedural aspects of preparing tax returns. Members of the IRS are obliged to examine supporting documents related to taxpayers. While it is not necessary to verify every piece of information that appears correct. If information does not however appear to be correct, the member is to investigate this by referring to previous returns. Such verification is subject to the member's declaration that, according to his or her knowledge all information in the tax documents is correct.

Statement 4 addresses the estimates provided by a taxpayer. If it is not practical to obtain the exact data, and where such information appears accurate, an IRS member may use the estimates to prepare the tax return. The professional judgments of the member are applicable and acceptable in this regard. It is also however advisable to obtain exact values where possible.

Statement 5 concerns a departure from previous administrative proceedings or court decisions. An IRS member may recommend a tax position that is different from a prior proceeding or court decision. In general, such decisions do not hold for later years, unless it is specified as such in the concluding decision.

Statement 6 concerns the knowledge of an error in a tax return. When becoming aware of such errors, the IRS member should inform the taxpayer right away and take corrective measures to remedy the return. The member may give an oral recommendation. There is no obligation to inform the taxing authority. When it is deemed necessary to do so, the taxpayers consent must be given. If the taxpayer fails to correct the error, it is subject to the IRS member's discretion whether to continue… [END OF PREVIEW]

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