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AICPA Statements on
Standards for Tax Services

Master the seven core standards that govern how CPAs prepare tax returns, advise clients, and navigate ethical obligations in tax practice.

CPA Regulation (REG)

What Are the SSTSs?

The Statements on Standards for Tax Services (SSTSs) are a set of enforceable ethical guidelines issued by the AICPA. They define the minimum standard of care that CPAs must follow when providing tax services to clients. Violations can lead to disciplinary action by state boards and the AICPA.

Why Do the SSTSs Matter?

Ethical Compass
They provide a clear framework for ethical decision-making in complex tax situations.
Public Trust
They ensure CPAs maintain the profession's integrity and the public's confidence in tax advisors.
Legal Shield
Compliance helps defend CPAs against malpractice claims and regulatory penalties.

The Seven Standards at a Glance

SSTS No. 1-7 No. 1 Tax Return Positions No. 2 Answers on Returns No. 3 Procedural Aspects No. 4 Use of Estimates No. 5 Departure from Position No. 6 Knowledge of Error No. 7 Form and Content Enforceable by AICPA + States

SSTS No. 1: Tax Return Positions

A CPA should not recommend a tax return position or prepare a return taking a position unless there is a reasonable basis for the position. The CPA must also determine that the position complies with applicable standards, such as the "realistic possibility" or "substantial authority" standard.

1
Realistic possibility standard: A position has at least a one-in-three (approximately 33%) likelihood of being sustained on its merits.
2
Disclosure exception: A position not meeting the realistic possibility standard may still be recommended if it has a reasonable basis and is properly disclosed.
3
No frivolous positions: A CPA must never recommend a position that exploits the audit process or is considered frivolous.

SSTS No. 2: Answers on Returns

A CPA should make a reasonable effort to obtain from the client, and provide, appropriate answers to all questions on a tax return before signing as preparer.

SSTS No. 3 & 4: Procedures and Estimates

No. 3: Procedural Aspects
A CPA may rely on information furnished by the client in good faith without requiring verification. However, the CPA should not ignore implications of information furnished and must make reasonable inquiries if the information appears incorrect, incomplete, or inconsistent.
No. 4: Use of Estimates
A CPA may use estimates if it is impractical to obtain exact data, and the estimates are reasonable based on facts and circumstances. The estimates should not imply greater accuracy than actually exists.

SSTS No. 5: Departure from a Prior Position

A CPA may recommend a tax return position that departs from the position taken in a client's prior year return as long as the position satisfies the standards in SSTS No. 1.

SSTS No. 6: Knowledge of Error

When a CPA becomes aware of an error in a previously filed return or a client's failure to file a required return, the CPA must act responsibly within specific guidelines.

1
Inform the client promptly about the error and recommend corrective measures.
2
Cannot inform the IRS without the client's permission: the CPA is bound by client confidentiality.
3
Consider withdrawal from the engagement if the client refuses to correct the error and it affects the current year return.

SSTS No. 7: Form and Content of Advice

A CPA should use professional judgment to determine the form and content of advice given to the client. The advice does not have to be in writing, but considerations include the complexity of the matter and the potential dollar amounts involved.

Communicate Clearly
Ensure the client understands the nature and potential consequences of the advice.
Update When Needed
A CPA has no obligation to update previously given advice unless new information arises or they are assisting the client in implementing the advice.

Realistic Possibility vs. Reasonable Basis

Realistic Possibility Reasonable Basis
Likelihood ~33% or greater > 0% but < 33%
Disclosure Required? No Yes (must disclose)
Used As Default standard for SSTS No. 1 Lower threshold with disclosure
Frivolous Allowed? Never Never
Penalty Protection Yes, generally Yes, if properly disclosed

How to Apply the SSTSs

1
Identify the tax position. Determine what position the client wants to take on the return.
2
Evaluate authority. Does the position meet the realistic possibility standard (~33%)? If not, does it have a reasonable basis?
3
Determine disclosure needs. If only reasonable basis exists, advise the client that proper disclosure is mandatory.
4
Gather and verify information. Use good-faith reliance on client data (SSTS No. 3), use estimates where appropriate (SSTS No. 4).
5
Document and advise. Communicate advice clearly (SSTS No. 7) and address any errors from prior returns (SSTS No. 6).

Example 1: Evaluating a Tax Position

1
Check the threshold: 40% > 33%, so this meets the realistic possibility standard.
2
Disclosure not required: Since the realistic possibility standard is met, the position can be taken without special disclosure.
3
Result: The CPA may recommend and prepare the return with this deduction.

Example 2: Position Requiring Disclosure

1
Below realistic possibility: 20% < 33%, so the standard threshold is not met.
2
Reasonable basis exists: The position is not frivolous and has some legal support.
3
Disclosure required: The CPA must advise the client that the position needs to be disclosed on the return (e.g., Form 8275) to avoid penalties.

Example 3: Discovering a Prior Error

1
Inform the client promptly of the error and recommend filing an amended return (SSTS No. 6).
2
Cannot notify the IRS without client permission: client confidentiality applies.
3
Consider withdrawal: If the error affects the current year return and the client refuses to act, the CPA should consider withdrawing from the engagement.

Common Mistakes to Avoid

✕ Confusing the Standards
Mixing up "realistic possibility" (~33%) with "substantial authority" (~40%) or "reasonable basis" (> 0%). Each threshold has distinct rules.
✕ Notifying the IRS of Errors
A CPA must inform the client of errors, not the IRS. Contacting the IRS without client permission violates confidentiality.
✕ Verifying All Client Data
SSTS No. 3 says a CPA may rely on client information in good faith. There is no requirement to audit or verify every piece of data.

Summary of All Seven SSTSs

SSTS Core Requirement
No. 1 Realistic possibility standard for tax positions; disclose if only reasonable basis
No. 2 Make reasonable effort to answer all return questions
No. 3 May rely on client info in good faith; inquire if inconsistent
No. 4 Estimates OK when exact data is impractical to obtain
No. 5 May depart from prior-year position if SSTS No. 1 is satisfied
No. 6 Inform client of errors; do not notify IRS without permission
No. 7 Use judgment on form/content of advice; no obligation to update

Question 1 of 5

Under SSTS No. 1, what is the minimum standard a tax return position must meet before a CPA can recommend it without disclosure?

Question 2 of 5

A CPA discovers that a client's prior-year return contains a material error. Under SSTS No. 6, what should the CPA do first?

Question 3 of 5

Under SSTS No. 3, a CPA preparing a tax return may generally rely on information furnished by the client without verification unless:

Question 4 of 5

A CPA is preparing a current-year return and wants to take a different position from what was reported on the client's prior-year return. Under SSTS No. 5, this is:

Question 5 of 5

Under SSTS No. 7, which of the following best describes a CPA's obligation regarding previously given tax advice?